Forcing auditors to tell the secrets of their clients?
As a general rule, communications between an auditor and client are private. The information given to an auditor can generally only be disclosed with the permission of the client, or in situations involving SEC filings.
But the protection of communications between auditors and clients isn’t anywhere near that of the attorney-client privilege. And this is causing some interesting things to happen.
Take for example, the lawsuit filed by Shaw Group against AES Coporation for almost $100 million in unpaid fees. AES was granted access to Shaw’s auditing records by the court.
This type of thing is causing angst all around. Companies are becoming concerned that auditors could be forced to turn over confidential documents that could expose the companies to lawsuits from shareholders and whistleblowers. In light of this, some companies are reluctant to turn over information to the auditors, especially regarding pending litigation and internal investigations. Yet without some of this documentation, auditors may be unwilling to give clean audit opinions.
Attorneys are advising companies that anything they give to the auditors could be subject to disclosure at a later date if a court requires documents to be turned over, like in the Shaw case.
I am a radical on this. I say: end lawyer-client privilege for publicly-traded companies.