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Top Auditor Revisits Role in Suits

Accounting oversight official says he won't testify as expert witness except under subpoena.

May 28, 2003|From Bloomberg News

Douglas Carmichael, chief auditor for the new board that oversees the U.S. accounting industry, said Tuesday that he will testify as an expert witness in lawsuits against major accounting firms only if he is subpoenaed to appear.

Carmichael was hired as an expert witness in several cases when he was an accounting professor at New York's Baruch College. He joined the Public Company Accounting Oversight Board in April and has five cases active in which he might be called to testify. They involve three of the four leading accounting firms: KPMG, Ernst & Young and Deloitte & Touche.

The possibility of his testifying against accounting firms led to criticism that he had a conflict of interest because he is now the top auditor for the board established by Congress last year to police the accounting industry after scandals at Enron Corp. and other companies.

Reacting to that concern, the board and Carmichael agreed that "the attorneys, if they want me to testify, will have to subpoena me, and we will honor that subpoena," Carmichael said.

He said he told the board from the beginning of his status as an expert witness. The board at first concluded "that since somebody could subpoena me and I would have to testify, it didn't make sense to formally require that," he said.

After assessing public reaction to that policy, Carmichael said, "We decided to go back" to requiring a subpoena.

He said he will not take any more fees as he finishes the cases and will not agree to be an expert witness in any more accounting cases as long as he is on the board.

Dennis Beresford, an accounting professor at the University of Georgia and a former chairman of the Financial Accounting Standards Board who criticized the PCAOB stance, said requiring a subpoena doesn't change anything.

"There's still a basic conflict," he said. "I'm very disappointed that they [the PCAOB] haven't simply told Mr. Carmichael that he has to disconnect himself from all these relationships or they won't bring him aboard."

Carmichael said he doesn't see a problem.

The cases "are all looking backward at the standards that existed at the time," he said, "and really don't affect what changes we might make to the standards."

Carmichael, whose job includes setting professional standards for auditors, said last week that he was continuing as an expert witness only on cases in which he already has written a report giving his opinions, a precursor to trial.

Expert-witness fees can be several hundred dollars an hour. In one recent case in which Carmichael testified for the SEC against Ernst & Young, he was paid $400 an hour, according to court documents.

As a nonprofit corporation, the accounting board doesn't fall under executive branch ethics rules, which prohibit personnel from acting as expert witnesses in federal courts or agencies when "the United States is a party or has a direct and substantial interest." The rules allow employees to testify in some cases if a designated ethics officer decides "the subject matter of the testimony does not relate to the employees' official duties."

PCAOB officials said the board will require Carmichael to recuse himself on audit board decisions if they conflict with his work as an expert witness.

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