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Choosing Gatekeepers: The Financial Statement Insurance Alternative To Auditor Liability, Lawrence A. Cunningham
Choosing Gatekeepers: The Financial Statement Insurance Alternative To Auditor Liability, Lawrence A. Cunningham
GW Law Faculty Publications & Other Works
Positioned in a lively current debate concerning how to design auditor incentives to optimize financial statement auditing, this Article presents the more ambitious financial statement insurance alternative. This breaks from the existing securities regulation framework to draw directly on insurance markets and law. Based on upon an evaluation of major structural and policy-related features of the concept, the assessment prescribes a framework to permit companies, on an experimental-basis and with investor approval, to use financial statement insurance as an optional alternative to the existing model of financial statement auditing backed by auditor liability.
The financial statement insurance concept, pioneered by …
Facilitating Auditing's New Early Warning System: Control Disclosure, Auditor Liability And Safe Harbors, Lawrence A. Cunningham
Facilitating Auditing's New Early Warning System: Control Disclosure, Auditor Liability And Safe Harbors, Lawrence A. Cunningham
GW Law Faculty Publications & Other Works
This Article considers the interplay between new auditing standards governing audits of internal control over financial reporting and pre-existing legal standards governing auditor liability for audit failure. The interplay produces skewed liability incentives that, if unadjusted, threaten to impair the objective of this new control-audit regime. The regime's objective is, in part, to provide an early warning to financial statement users when current financial statements are reliable but control weaknesses indicate material risk of a company's future inability to produce reliable financial statements. To be meaningful, auditor disclosure of material weaknesses and potential effects is necessary.
While liability rules under …
A Model Financial Statement Insurance Act, Lawrence A. Cunningham
A Model Financial Statement Insurance Act, Lawrence A. Cunningham
GW Law Faculty Publications & Other Works
Building on companion work investigating the efficacy of financial statement insurance (FSI) as an alternative to traditional auditor liability (ssrn.com/abstract=554863), this Article presents the terms of a national enabling statute to implement this concept. The Model Financial Statement Insurance Act uses the architecture of the U.S. Trust Indenture Act of 1939. It authorizes issuer application for qualification, in connection with annual proxy statement filings, of policies of financial statement insurance. The Model FSI Act deems a series of provisions necessary to achieve securities law objectives to be part of all financial statement insurance policies so proposed, and requires insurers to …