The document presents an analysis of accountants' professional liability, highlighting the exposure to litigation and the trends in accounting malpractice settlements from 1991 to 2009, including notable cases and firms involved. It outlines the impact of the financial crisis, the Madoff Ponzi scheme, and patterns in restatements in financial reporting. Additionally, it examines the performance of major accounting firms and the decrease in the severity of restatements in recent years.

1. Accountants Professional Liability
Scorecards and Commentary
Mark Cheffers, Audit Analytics, CEO
Robert Kueppers, Deloitte LLP, Deputy CEO
July 9-10, 2009
21st Annual ALI-ABA - Accountants’ Liability Conference

2. Liability Exposure
• Managing Current Case Exposures
– Large Settlements
– Historical and Current Cases
– Madoff/Ponzi Cases
– Credit Crisis/Subprime Cases
– Other Federal Class Actions
– Financial Restatements
– Going Concerns
– Audit Complexity & Standards Diffusion
IVES Group Inc. phone: (508) 476-7007 e-mail: info@auditanalytics.com 2

3. Liability Exposure
• Expanding Theories of Audit Failure
– Auditor as Global Firm Guarantor
– Auditor as Third Party Investee Investigator
– Auditor as Predictor of Future Business
Success
– Auditor as Fidelity Bond/Fraud Guarantor
– Auditor as Arbiter of a Diffusion of
Standards
IVES Group Inc. phone: (508) 476-7007 e-mail: info@auditanalytics.com 3

4. Top 50 All Time Accounting Malpractice Settlements (1991-2009)
Totals by Year
1400
1239
1200
1006
1000
800
628
600 558
418 429 393 383
400
245 259 255
193 217
168
200 109
82 65
0
0
Total Settlements (US$ Millions)
Source: AuditAnalytics.com
IVES Group Inc. phone: (508) 476-7007 e-mail: info@auditanalytics.com 4

5. Top 50 All Time Accounting Malpractice Settlements (1991-2009)
Totals by Firm
2500.0
2000.0 1920.5
1500.0 1418.6
1254.0 1267.3
1000.0
783.5
500.0
0.0
Andersen Deloitte EY KPMG PwC
Total Settlements (US$ Millions)
Source: AuditAnalytics.com & Public Accounting Report
IVES Group Inc. phone: (508) 476-7007 e-mail: info@auditanalytics.com 5

6. Top 50 Accounting Malpractice Settlements as of May 2009
(in US$ Millions)
$3,188.3
$3,455.6
Public
Non-Public
$2,900.0
$3,743.9 Government
Non-Government
Source: AuditAnalytics.com
IVES Group Inc. phone: (508) 476-7007 e-mail: info@auditanalytics.com 6

7. Notable Exposures - From 2006: Current Status
• Fannie Mae • Tyco International*
• Delphi Corp* • HealthSouth*
• American International • Freddie Mac
Group* • Royal Dutch Shell
• Tenet Health Care • Dynegy
• REFCO • PNC Financial
• Dell Co • Sprint
• Computer Associates • Nortel Networks
• United Health • Lloyds
• AOL Time Warner* • Doral Financial
• Parmalat*
IVES Group Inc. phone: (508) 476-7007 e-mail: info@auditanalytics.com 7

8. Notable Exposures - 2009 (excl. 2006 list)
• E.S. Bankest • Citibank
• Satyam • Bear Stearns
• Madoff/Arthur Nadel • Bank of America
• New Century Financial • Wells Fargo
• Moody’s • Washington Mutual
• UBS • Sallie Mae
• Royal Bank of Scotland • Royal Bank of Canada
• Goldman Sachs • Societe Generale
• The Blackstone Group • State Street Corp
• Wachovia • Oppenheimer Funds
• Merrill Lynch • Lehman Brothers
IVES Group Inc. phone: (508) 476-7007 e-mail: info@auditanalytics.com 8

9. Madoff Ponzi Scheme
Securities Class Action Plaintiff Law Firm List
(as of May 15, 2009)
# Cases Filed: 25
# Feeder Funds Implicated: 21
# Auditors Presently Named: 8 (11 cases)
Accounting Firms Cases
KPMG 1
Ernst & Young 3
PricewaterhouseCoopers 1
Deloitte 0
BDO 2
Grant 0
Regional 4
IVES Group Inc. phone: (508) 476-7007 e-mail: info@auditanalytics.com 9

10. Madoff Ponzi Scheme
Securities Class Action Plaintiff Law Firm List
(as of May 15, 2009)
# Cases Filed: 25
# Feeder Funds Implicated: 21
# Auditors Presently Named: 8 (11 cases)
Plaintiff Law Firms Cases
Coughlin Stoia Geller Rudman & Robbins LLP 4
Wolf Haldenstein Adler Freeman & Herz LLP 3
Abbey Spanier Rodd Abrams & Paradis LLP 2
Hagens Berman Sobbel Sharpiro LLP 2
IVES Group Inc. phone: (508) 476-7007 e-mail: info@auditanalytics.com 10

11. Credit Crisis
Class Actions Where Auditors Named
(by number of cases from 2007 to May 2009)
# Cases Filed: 179
# Auditors Presently Named: 6 (9 cases)
Accounting Firm Cases
KPMG 2
PricewaterhouseCoopers 1
Deloitte 1
Ernst & Young 1
BDO 0
Grant 4
Regional 1
IVES Group Inc. phone: (508) 476-7007 e-mail: info@auditanalytics.com 11

12. Credit Crisis
Top 5 Securities Class Action Plaintiff Law Firms
(by number of cases from 2007 to May 2009)
# Cases Filed: 179
# Auditors Presently Named: 6 (9 cases)
Plaintiff Law Firm Cases
Coughlin Stoia Geller Rudman & Robbins LLP 65
Abraham Fruchter & Twersky 9
Seeger Weiss LLP 9
Stueve Siegel Hanson 9
Wolf Haldenstein Adler Freeman & Herz LLP 7
Barroway Topaz Kessler Meltzer & Check, LLP 6
Glancy Binkow & Goldberg LLP 6
Note: Some cases may involve more than one plaintiff, each with separate representation, and thus more than one law
firm may be counted in a single case. Not shown above are the following law firms: 4 firms with 5 cases, 4 firms with 4
cases; 5 firms with 3 cases; 18 firms with 2 cases; and 85 firms with 1 case. For a complete list contact Audit
Analytics, a division of the IVES Group.
IVES Group Inc. phone: (508) 476-7007 e-mail: info@auditanalytics.com 12

13. Federal Securities Class Action Litigation Summary
Big 4 Auditors
Number of Claims Filed
Public Accounting Firm
2000 2001 2002 2003 2004 2005 2006 2007 2008
Deloitte LLP 11 8 9 14 4 4 3 6 6
Ernst & Young LLP 6 5 13 18 10 4 20 1 7
KPMG LLP 8 5 14 9 14 6 6 5 6
PricewaterhouseCoopers LLP 13 4 11 15 19 9 7 9 5
Big Four Total 38 22 47 56 47 23 36 21 24
Open Cases 1 0 7 18 16 4 14 19 21
Note: The year displayed represents the year the action was filed with the court.
IVES Group Inc. phone: (508) 476-7007 e-mail: info@auditanalytics.com 13

14. Federal Securities Class Action Litigation Summary
National Firm Auditors
Number of Claims Filed
Public Accounting Firm
2000 2001 2002 2003 2004 2005 2006 2007 2008
Grant Thornton LLP 2 2 0 2 2 8 3 4 1
BDO Seidman LLP 0 0 2 6 1 3 1 5 4
McGladrey & Pullen LLP 0 0 0 1 0 1 2 0 0
Crowe Horwath LLP 0 1 2 2 2 0 1 3 0
Total 2 3 4 11 5 12 8 12 5
Open Cases 0 1 1 4 2 4 6 12 5
Note: The year displayed represents the year the action was filed with the court.
The numbers displayed in the row for Crowe Horwath LLP includes actions against Crowe Chizek & Company LLC.
IVES Group Inc. phone: (508) 476-7007 e-mail: info@auditanalytics.com 14

15. Federal Securities Class Action Litigation Summary
Top Twelve Regional Tier Auditors
Number of Claims Filed
Public Accounting Firm
2000 2001 2002 2003 2004 2005 2006 2007 2008
Moore & Associates Chartered 0 0 0 0 0 0 0 0 0
Malone & Bailey PLLC 0 0 0 0 0 0 0 0 0
Sherb & Co LLP 0 0 0 2 2 0 0 1 0
Beard Miller Company LLP 0 0 0 0 0 0 0 0 0
Moss Adams LLP 0 0 0 0 0 0 0 1 0
UHY LLP 0 0 0 0 0 0 0 0 0
Madsen & Associates CPAs Inc 0 0 0 0 0 0 0 0 0
Child Van Wagoner & Bradshaw PLLC 0 0 0 0 0 0 0 0 0
Hein & Associates LLP 0 0 0 1 1 0 0 0 0
Marcum & Kliegman LLP 0 0 0 1 0 0 0 0 0
Chisholm Bierwolf & Nilson LLC 0 0 0 0 0 0 0 0 0
Kabani & Co Inc 0 0 0 0 0 0 1 0 0
Total 0 0 0 4 3 0 1 2 0
Open Cases 0 0 0 1 1 0 1 2 0
Note: The year displayed represents the year the action was filed with the court.
IVES Group Inc. phone: (508) 476-7007 e-mail: info@auditanalytics.com 15

16. Top 15 Securities Class Action Defense Law Firms Representing the Big 4
(by number of cases from 2000 to May 2009)
Defense Law Firm Cases
Mayer Brown LLP 15
Gibson Dunn & Crutcher LLP 14
Latham & Watkins LLP 14
Davis Polk & Wardwell 13
Sidley Austin LLP 12
Hughes Hubbard & Reed LLP 9
Kirkland & Ellis LLP 8
Willkie Farr & Gallagher LLP 7
Bingham McCutchen LLP 6
Cravath Swaine & Moore LLP 6
Orrick Herrington & Sutcliffe 6
Vinson & Elkins LLP 6
Hogan & Hartson LLP 5
Sutherland Asbill & Brennan LLP 5
Jones Day 5
Note: Some cases may involve more than one Big 4 defendant. A total of 136 law firms represented the Big 4
from 2000 to May 2009. For a complete list contact Audit Analytics, a division of the IVES Group
IVES Group Inc. phone: (508) 476-7007 e-mail: info@auditanalytics.com 16

17. Quality of Financial Reporting - Calendar Year 2008 has
Experienced a Second Year of Decline in Restatement Disclosures
Total Restatements by Year
Unique filers Restatements
2008 Restatements 1800
1555 1565
• 778 Unique Filers 1403
1235
1111
• 869 Restatements
957
875 869
819 778
759
• 30% Drop from Prior Year 579 616
647 696
• Appears as if registrants are
adapting to the rigorous
financial reporting requirements
of SOX 2001 2002 2003 2004 2005 2006 2007 2008
Source: AuditAnalytics.com
IVES Group Inc. phone: (508) 476-7007 e-mail: info@auditanalytics.com 17

18. Calendar Year 2008 also Experienced a Drop in the Severity of
Restatements
1. Average Cumulative Impact on Net Income per Restatement (companies on
Amex, NASDAQ & NYSE)
Average Income Adjustment Per Restatement
• Not only are the number of
Average Income Adjustment Per Restatement
restatements down in
2008, each of these fewer
restatements has a much $0.00
smaller negative effect than
in the prior two years. -$5,000,000.00
-$6,125,966.93
-$7,444,280.39
-$10,000,000.00
-$15,000,000.00
-$20,000,000.00
-$22,552,509.53
-$25,000,000.00
2006 2007 2008
Source: AuditAnalytics.com
IVES Group Inc. phone: (508) 476-7007 e-mail: info@auditanalytics.com 18

19. Calendar Year 2008 also Experienced a Drop in the Severity of
Restatements (continued)
2. No Impact on Income (companies on Amex, NASDAQ & NYSE)
• In 2008, a Total of 99 out of Percentage of Restatements with No Impact on Income
296 Restatements had No Restatements with no Impact on Income
Impact on the Income
Statement.
33.18% 33.45%
29.57%
2006 2007 2008
Source: AuditAnalytics.com
IVES Group Inc. phone: (508) 476-7007 e-mail: info@auditanalytics.com 19

20. Calendar Year 2008 also Experienced a Drop in the Severity of
Restatements (continued)
3. Average Number of Days Restated
• The Average Restatement Average Restatement Period per Year
Period Peaked in 2005
Average Number of Days Restated
• The Time Period Dropped 747 718
in 2006 and again in 2007 621 646
573
and 2008 537
479
466
2001 2002 2003 2004 2005 2006 2007 2008
Source: AuditAnalytics.com
IVES Group Inc. phone: (508) 476-7007 e-mail: info@auditanalytics.com 20

21. Calendar Year 2008 also Experienced a Drop in the Severity of
Restatements (continued)
4. Average Number of Issues per Restatement
• A Taxonomy of Over 50 Issues
Monitored and Graded
Average Issues per Restatement
Average Number of Issues per Restatement
• In 2008, the Average Restatement 2.43
Implicated only 1.66 Financial 2.12 2.13 2.19
2.00 2.01 1.90
Accounting Issues 1.66
• Lower than the Prior 7 Years
2001 2002 2003 2004 2005 2006 2007 2008
Source: AuditAnalytics.com
IVES Group Inc. phone: (508) 476-7007 e-mail: info@auditanalytics.com 21

22. The Top 7 Issues have been Common over the Last 8 Years, but
Cash Flow (SFAS 95) has Steadily Increased to Take the 3rd Spot
Top Restatement Issues between 2001 and 2008
30.00%
Percent of Restatements Citing Issue
Debt, quasi-debt, warrants & equity
( BCF) security issues
25.00%
Expense (payroll, SGA, other)
recording issues
20.00% Cash flow statement (SFAS 95)
classification errors
15.00% Deferred, stock-based and/or
executive comp issues
Acquisitions, mergers, disposals, re
10.00% -org accounting issues
Revenue recognition issues
5.00%
Tax expense/benefit/deferral/other
(FAS 109) issues
0.00%
2001 2002 2003 2004 2005 2006 2007 2008
Source: AuditAnalytics.com
IVES Group Inc. phone: (508) 476-7007 e-mail: info@auditanalytics.com 22

23. Going Concerns
(Number of Auditor Opinions Qualified with a Going Concern Assumption)
25.0%
22.1%
20.9%
20.0% 19.2%
18.5% 18.4%
16.8% 16.9%
15.9%
15.0%
15.0%
10.0%
5.0%
0.0%
2000 2001 2002 2003 2004 2005 2006 2007 2008*
Number of Going Concern Auditor Opinions
Note: The research above is based on SEC filings as of May 27, 2009 (an Audit Opinion database download of May
29, 2009). Therefore, the 2008 percentage is a prediction based about 95% of the expected audit opinions for the 2008
year end.
Source: AuditAnalytics.com
IVES Group Inc. phone: (508) 476-7007 e-mail: info@auditanalytics.com 23

24. Going Concerns
(Number of Auditor Opinions Uncertain of its Going Concern Assumption)
Number of Going Concern Auditor Opinions
3500 3293 3304
3065
2901 2924
3000 2805 2747
2617 2600
2500
2000
1500
1000
500
0
2000 2001 2002 2003 2004 2005 2006 2007 2008*
Note: The research above is based on SEC filings as of May 27, 2009 (an Audit Opinion database download of May
29, 2009). Therefore, the 2008 percentage is a prediction based about 95% of the expected audit opinions for the 2008
year end.
Source: AuditAnalytics.com
IVES Group Inc. phone: (508) 476-7007 e-mail: info@auditanalytics.com 24

25. Going Concerns As a Percentage of Total Auditor Opinions
2000 2001 2002 2003 2004 2005 2006 2007 2008*
Going Concerns 2,805 3,065 2,901 2,617 2,600 2,747 2,924 3,293 3,304
Total Auditor Opinions 16,676 15,954 15,656 17,484 16,390 16,296 15,888 15,773 14,944
% of All Opinions 16.82% 19.21% 18.53% 14.97% 15.86% 16.86% 18.40% 20.88% 22.11%
Note: The research above is based on SEC filings as of May 27, 2009 (an Audit Opinion database download of May
29, 2009). Therefore, the 2008 percentage is a prediction based about 95% of the expected audit opinions for the 2008
year end.
Source: AuditAnalytics.com
IVES Group Inc. phone: (508) 476-7007 e-mail: info@auditanalytics.com 25

26. Going Concern Percentages
(Breakdown by Market Status)
Total NYSE Nasdaq Amex OTCBB Non-Tickered
Going
Concerns Going Going Going Going Going
% % % % %
Concerns Concerns Concerns Concerns Concerns
2008 (partial) 2,964 19 0.64% 123 4.15% 76 2.56% 1,854 62.55% 892 30.09%
2007 3,293 10 0.30% 66 2.00% 37 1.12% 1,929 58.58% 1,251 37.99%
Note: The research above is based on SEC filings as of May 27, 2009 (an Audit Opinion database download of May 29,
2009). Therefore, the 2008 percentage is a prediction based about 95% of the expected audit opinions for the 2008
year end.
Source: AuditAnalytics.com
IVES Group Inc. phone: (508) 476-7007 e-mail: info@auditanalytics.com 26

27. Audit Complexity and Diffusion of Standards
Example: SEC Comment Letters
Communications Equipment Industry
Securities Regulations Referred to: 135
Accounting Standards Referred to: 210
Other Requirements Referred to: 45
Source: AuditAnalytics.com
IVES Group Inc. phone: (508) 476-7007 e-mail: info@auditanalytics.com 27

28. Audit Analytics® provides intelligence on over 20,000 public companies and 1,500 accounting firms. Our data
includes detailed categorizations of issues and is considered by many professionals to be the best primary data
source for tracking and analysis of the following public company disclosures:
Auditor Information
Know who is auditing whom, their fees, auditor changes, auditor opinions and more.
Sarbanes-Oxley Disclosures
Track Section 404 internal control disclosures and Section 302 disclosure controls.
Financial Restatements and SEC Comment Letters
Identify financial restatements by type, auditor and peer group. Analyze by date,
period and specific issue. Benchmark company financial reporting issues by using our comprehensive SEC
Comment Letter database
Litigation & Legal Disclosures
Search all federal litigation by auditor, company and litigation type. Know who is
representing whom.
Corporate Governance
Track director & officer changes, audit committee members, C-level executives and
their biographies.
For Additional information on our services and research, please visit our website at
www.AuditAnalytics.com, call us at (508) 476-7007 or e-mail jsmillie@ivesinc.com
IVES Group Inc. phone: (508) 476-7007 e-mail: info@auditanalytics.com 28

29. Accountants Professional Liability
Scorecards and Commentary
Supporting Schedules
July 9-10, 2009
21st Annual ALI-ABA - Accountants’ Liability Conference