Analysis: Knives out for auditors as class actions go global

Thu Mar 21, 2013 11:10am EDT
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By Dena Aubin

NEW YORK (Reuters) - Class actions against the world's largest corporate auditing firms are spreading globally as governments bolster investor protection laws in countries where the Big Four firms have previously not faced substantial legal risks.

Even as class action lawsuits dwindle in the United States due to court rulings and legislation, the number of countries allowing these kinds of suits has grown to more than 20, including recent additions Italy, Poland and Mexico.

The biggest class action settlement in Australia came last year in a $203-million case that named audit firm PricewaterhouseCoopers PWC.UL as one of the defendants. It paid about a third of the sum.

Ernst & Young last year paid about $118 million in Canada's largest class action settlement against an auditor.

For the Big Four - PricewaterhouseCoopers, Ernst & Young ERNY.UL, KPMG KPMG.UL and Deloitte DLTE.UL - the offshore expansion of class actions presents a big risk.

These firms check the books of most of the world's largest corporations. When accounting scandals erupt - and they regularly do - shareholders with losses on their investments typically seek legal recourse. Those able to sue as a class frequently target deep-pocketed audit firms.

"The average investor or common man truly does not have access to a means by which they can sue a Big Four auditor," said Andrea Kim, a partner at Houston law firm Diamond McCarthy who represents plaintiffs in lawsuits against auditors.

"Class actions give you a bigger chance of affordable representation against a behemoth like a Big Four," she said.   Continued...

The Deloitte Company logo is seen on a commercial tower at Gurgaon, on the outskirts of New Delhi August 9, 2012. REUTERS/Parivartan Sharma