Lawyers and Auditors: The Perfect Storm of Privilege Issues?
"Answers to Questions You Wish Your Outside Auditor Hadn't Asked" at the ACC Annual Meeting raised lots of questions, but provided lots of solutions, too. When it comes to privilege protection and erosion, many in-house lawyers are terribly afraid of the threat from within: the likelihood that their auditors, newly empowered and intimidated by the PCAOB, will not be satisfied with anything less than everything you've got when assessing the fiscal health and adequacy of internal controls in their yearly, quarterly, even daily work in auditing the company's finances.
Many folks prefer to think of privilege erosion in the government investigation context as "someone else's" problem - they believe and hope that they won't have to weather such scrutiny because their company has not been subject to a major investigation. But auditors today are far more like adversaries or regulators than part of the corporate family of service providers (whether they like that comparison or not), and in-house counsel are well-advised to remember that in today's world of auditor "independence." Today, privilege waiver is more likely to occur int he context of your ongoing audit relationship than it is in a government investigation: courts are more likely to deem that you've waived the privilege through your communications with auditors about internal investigations, reserves, or other legal processes than ever. A most disturbing trend for those interested in assuring that lawyers and auditors collaborate well in assessing the efficacy of internal controls.
Program leaders Tom Sabatino, CLO of Schering Plough, and Steve Cannon, former CLO of Circuit City (and ACC's outside counsel on privilege issues, as well as our lobbyist) are discussing the practical checklists in-house counsel should consider, along with other panelists, ACC board leader Jon Oviatt (CLO of Mayo), Catherin Englebert of Deloitte & Touche and Maryann Clifford (VP and CCO, Motorola). Especially interesting is the sub-conversation that recent massive failures in the financial services industry will create disclosure mandates and practices that it will be hard to reverse - will the pressure toward "transparency" outweigh legitimate protections and rights of corporate clients?
Are lawyers from Mars and auditors from Venus? Or do they live on some third planet together that is a long way away from what our clients prefer that we focus our time on doing? And how do we find our way back home?
