Sarbanes-Oxley consulting creates opportunities and risks (July 13, 2005)

Underwriters and accountants will have many opportunities to advise companies in interpreting and implementing the Sarbanes-Oxley Act, but should be aware of the increased exposure to risk, according to information recently revealed at the PLUS E&O Symposium. Douglas Carmichael, chief auditor, Public Company Accounting Oversight Board, reviewed the requirements of the Act and the responsibilities for managers and accountants to go beyond adhering to GAAP. He outlined the procedures for disclosing financial weaknesses or deficiencies and described the penalties under the Act for failure to do so. “Compliance with accounting standards won’t be a comprehensive defense if you had criminal intent,” Carmichael says. Criminal penalties associated with improper financial reporting would differ if it was “knowing,” which implies recklessness, versus “willful,” which implies actual knowledge or intent, according to Carmichael.David A. Sukert, senior vice president, Aon Insurance Services, says that companies have a continuing obligation to stay on top of the many changes involved in implementing Sarbanes-Oxley. He says that market reaction so far has not been different from other areas of practice client selection is still the theme. Before taking on a client, consulting firms need to be sure they can do the job and have the requisite personnel. “You also have to ask yourself, ‘Will this be part of our long-term succession plan?'” Sukert says.Mario Lemme, president, Lemme Insurance Group, Inc., agreed. He adds that underwriters and brokers need to get their clients talking. “You want your clients to be transparent and educate the underwriters,” Lemme says. He observes that the shortage of qualified people in the accounting field is a concern. And although Sarbanes-Oxley is aimed at private companies, Lemme believes it will cascade to not-for-profit companies.Thomas Manisero, member of Wilson, Elser, Moskowitz, Edelman & Dicker, LLP, and co-chairman of the firm’s Professional Liability Practice Team, talked about the claims likely to be generated by SOX consulting. He suggests that the first step in protection for consulting firms is to put clear provisions in engagement letters. Manisero says that auditors will be sued if there is a loss or claim due to internal control failures. Manisero cautions that “there is an opportunity for exposure for these firms this is not a risk-free way to make money.” He says that there are risk management tools that are out there that firms should avail themselves, including having liability provisions in their engagement letters. Manisero pointsout that provisions could be made that management will indemnify consultants, if the consultants face liability, as another level of protection. Carmichael adds that since the deadline has been extended for some filers, there may even be a debate over who is at fault the company or the consulting firm if the company doesn’t make the deadline.