Some of the ways that the Private Securities Reform Act of 1995 changed both the responsibilities and at the same time benefited auditors The Reform Act:
Places a cap on damages that would potentially reduce the maximum amount that auditor’s could be liable for. Requires plaintiffs to pay defendant’s reasonable attorney’s fees and expenses directly related to litigation found by the court to be frivolous and unwarranted. This may make it unlikely that auditor’s will be sued for deep pockets if the suit is found to be frivolous and unwarranted. Provides for a stay of discovery during the period a motion to dismiss is pending, thereby reducing a cost that often forces innocent parties to settle frivolous class action suits. Limits punitive damages by eliminating securities fraud as a basis for bringing action under the Racketeer Influenced and Corrupt Organization Act which provides for treble damages. The limit on punitive damages will directly reduce the cost of damages to auditors. Places limits on the rights of third parties to sue by limiting the number of times a plaintiff can be a lead plaintiff to no more than five class actions in any three-year period and by imposing stricter pleading standards to be met by plaintiffs. This limits the number of individuals that may sue auditors and reduces the likelihood of suit by “professional plaintiffs.” Changes the manner in which the court appoints lead plaintiffs in class actions to favor institutional investors likely to have the largest financial state in the relief sought and to mitigate the “race to the courthouse by professional plaintiffs” who hold minimal ownership interests. This also limits the number of individuals that may sue auditors and reduces the likelihood of suit by “professional plaintiffs.”
Following is a list of key changes for auditors as a result of the Sarbanes – Oxley Act of 2002. A number of non-attest services are prohibited for auditors of public companies....
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