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By Susan Bokermann
April 20 — It’s important that auditors feel the general counsel and the in-house staff at a company are being open and honest during the auditing process, said Maryann A. Waryjas, senior vice president, chief legal officer and secretary at Great Lakes Dredge & Dock Corp.
However, this openness must be tempered by the general counsel’s duty to the company as their client. “There is a tension between the auditor’s responsibilities and the attorney’s duties to the client company,” said Stanley Keller, of counsel at Locke Lord LLP.
This relationship was discussed during a panel titled “In-house Counsel: What Should They Tell Auditors and How” during the American Bar Association's Business Law Section spring meeting April 18.
It’s important to remember in terms of auditing that there are three parties involved: the company, the company’s lawyers and the company’s auditors, said Keller. The primary responsibilities of these parties are different. The company’s responsibility is for the disclosure. The lawyers’ responsibilities are to their client, the company. And the auditor’s responsibility is to audit the disclosure.
One way to approach this tension is to be proactive about communication. “It’s all about communication with the audit partner,” said Waryjas. “We have a dialogue.”
She contrasted this with her work as outside counsel, where she said that communication with auditors was infrequent and generally electronic. Waryjas said that there was “time and space” between herself and her client’s auditors.
Waryjas contrasted this with her current work in-house, where she said she communicates with the company’s auditors at least every quarter. She emphasized the importance of being a respected partner to the audit staff. The auditor has to be comfortable that a “thorough investigation is being performed” and maintaining a good working relationship is key to that success.
However, while cooperating with the auditor is important, it is also important to uphold the duties to the client, including confidentiality, zealous representation and reporting requirements, said Keller. In terms of the internal investigation, “facts are not protected, but a lawyer’s assessment of those facts in the context of legal advice is protected,” he said.
“Keep your auditor close. Not too close,” added Thomas White, partner at Wilmer Cutler Pickering Hale and Dorr LLP.
In a lot of ways, the audit process is “very similar to an enforcement action or a DOJ investigation,” said Keller. Whether you seek to preserve and maintain privilege is a judgment you have to make. “Sometimes it’s better to get the facts out there,” he said.
From the auditor’s perspective, he or she is trying to gather evidence to support the management’s assertions regarding an investigation, said White. “Auditors expect to get the information they think they need to complete their audit.”
Auditors typically sit down with counsel, get the schedule of any pending claims, get an understanding of how a company’s reserves have been prepared, look at the legal spend of the company and undertake a confirmation process of this information, said Peter Brown, managing director at PwC.
“Lawyers are not typically verbose” during this process, “as in, not very helpful,” he added.
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