Boston College Law School Lectures and Presentations

Title

The Financial Statement Insurance Alternative to Auditor Liability

Document Type

Article

Comments

Presentation to the Association of American Law Schools Section on Business Associations, San Francisco, California, January 8, 2005.

Abstract

These articles evaluate using financial statement insurance (FSI) to reduce the frequency and magnitude of audit failure. The FSI concept was pioneered by Josh Ronen, NYU Accounting Professor, who has modeled its economic aspects. My paper examines FSI’s efficacy from policy and legal perspectives. I conclude that while the model is not perfect, it promises considerable advantages over the current model. While some of the existing system’s imperfections are sustained or reappear in different guises, none of the existing imperfections appears to be aggravated and the rest likely are mitigated significantly. So I prescribe a framework to permit companies, on an experimental-basis and with investor approval, to use FSI as an optional alternative to financial statement auditing backed by auditor liability.

Date of Authorship for this Version

January 2005

Keywords

financial statement insurance, auditor liability, securities regulation, liability insurance, title insurance, corporate governance, financial reporting, outside auditor