November 02, 2005
How Like An Accountant Ought a Lawyer Be?
Posted by David Zaring

Should “proactive” duties on be imposed on lawyers to investigate the financial statements of their clients? After the collapse of Enron, due in part to dodgy securitization deals that had been reviewed by lawyers at Vinson & Elkins, a number of academics have voiced support for something like a “duty to investigate” their clients. Your guest blogger is on an Enron kick, so I thought I’d be remiss in relating at least part of the state of play, as seen by this only vaguely informed observer.

I recently attended a stimulating lunch talk by Steven Schwarcz, in which he weighed the merits of a proactive paradigm against a “reactive” approach, which could trigger duties for further inquiry by lawyers, but only once a specified – and limited – series of conditions were met. I won’t try to characterize Steven’s views – his paper will be available soon, and this piece touches on similar issues – but it strikes me that there are functional differences between accountants, who often have on-site teams working with their corporate clients, and lawyers, who are – perhaps – more likely to be hired for discrete matters, like the review of a series of securitization deals.

So would efforts to make lawyers do more investigating change the traditional relationship they have with their clients? And if so, how – getting right to the point – would it affect fees? Perhaps Enron’s collapse will in fact be a beautiful thing for corporate lawyers.

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