US Treasury panel mulls audit liability reforms

WASHINGTON, May 30 (Reuters) - A U.S. Treasury Department panel is considering ways to give accounting firms limited protection from lawsuits that threaten to shut their business, according to a draft report released on Friday.

Auditors, haunted by the collapse of Arthur Andersen after its audit of Enron Corp (ECSPQ.PK), have been lobbying regulators for limits on how much they can be sued for if their clients commit fraud.

Four accounting firms dominate the industry: Deloitte & Touche [DLTE.UL], PricewaterhouseCoopers [PWC.UL], Ernst & Young [ERNY.UL] and KPMG [KPMG.UL].

Collectively they audit 98 percent of U.S. companies with annual revenues over $1 billion, according to the U.S. government.

As the market capitalizations of public companies have grown, the firms say they could face catastrophic liability claims from investors that could cause the loss of another firm and severely limit competition.

The panel is considering whether to recommend that Congress provide federal courts with exclusive jurisdiction over some auditor lawsuits.

Currently claims related to audits of public company financial statements can be brought in state courts.

"Bringing cases in federal court with a uniform standard of care would help address some of the pressure that firms face in state court without taking away shareholder rights," said Cindy Fornelli, executive director with the Center for Audit Quality, an organization representing public company auditors. Fornelli is not part of the Treasury panel.

But the panel said some have concerns that this approach might weaken shareholders' rights and remedies, according to the draft report posted on the Treasury Department's Web site.

The 21-member panel assembled by the Treasury Department to improve the audit industry has already agreed on a number of recommendations to boost competition among firms and keep up with the latest market developments.

The panel meets on Tuesday to discuss recommendations and expects to make its final report to Treasury by July.

(Reporting by Rachelle Younglai, editing by Leslie Gevirtz)