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(n310) When a business fails parties are often sued for having failed earlier to disclose the precariousness of the enterprise's financial situation. Public disclosure, however, would almost certainly have lessened the chances of survival. Thus, when auditors seek to calculate a "risk-of- insolvency-component" as part of the fee they will charge, they are likely to receive minimal and misleading information from their clients on this score when they most need accurate information.

(n311) See, e.g., Lee Berton, Accounting Profession, Once a Staid Field, Is Torn by Incivility, WALL ST. J., July 24, 1991, at A1 (pointing out that falling revenues from increased competition, but with public liability insurance tripling to $12,500 per accounting firm partner in five years, is forcing many CPA firms out of business).

(n312) See id.

(n313) See supra note 69-91 and accompanying text. See also Blowing the Whistle on Accountancy, THE ECONOMIST, Aug. 22, 1990, at 15.

The big eight firms became the big six as they merged and remerged, struggling to push under one roof a whole range of business services, like tax advice, management consultancy, corporate finance, and, yes insolvency. This left them woefully dependent on non-recurring fee businesses like consulting; it also encouraged them to cut auditing charges to win other businesses. (emphasis added)

See also Berton and Adler, supra note 5 ""Seeking to keep the work, Price Waterhouse ... offer[ed] to remain United's auditor for $140,000 a year, which some auditors term about half the going rate. Offering attractive fees to get or keep auditing work was fairly common in the mid- 1980s as competition intensified."). Although there have been warnings that CPA firms will drastically reduce their audit services and will dramatically raise their audit fees - and there is some evidence that this may be happening, see Lee Berton, Legal Liability Awards are Frightening Smaller CPA Firms Away From Audits, WALL ST. J., Mar. 3, 1992, at B1, we believe that, in the absence of structural change, any trend towards less competitiveness for audit engagements will prove to be a temporary phenomenon.

(n314) See id. ("When auditing becomes a loss-leader it is scarcely surprising that it gets done badly or misleadingly."); see also Washington Update, J. ACCT., June 1986, at 50. "[B]illion dollar losses by investors are not beyond contemplation, yet auditors' fees cannot be expected to grow commensurately, and the ability of auditors to respond to massive damage claims could threaten the viability of the profession and reduce the quality and scope of services that the profession can provide." Id. (quoting Ray J. Groves, chairman of the AICPA's special committee on accountants' legal liability). Many fair-minded observers would rate Mr. Groves's 1986 prediction right on target.

(n315) See, e.g., Medniek, supra note 196; David A. Olsen, Let's Have Fair Play for the C.P.A., N.Y. TIMES, Dec. 29, 1991, at 13.


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