We noted last week that more people are raising the issue of auditor involvement in some of the financial meltdowns we've seen. The list is long, of course: Fannie and Freddie, Bear Stearns and Lehman Brothers, to name a few. So how should the industry respond?  

Well, you can't ignore the prevailing mood in Washington. Regulation and reform are in the air. Which is precisely why some people think that audit firms should prepare for a backlash of sorts. Many assume that a wave of suits and possibly prosecutions are coming, according to Compliance Week. They may be better to suited to withstand the legal heat, however, compared to the likes of Arthur Andersen, which was ultimately dealt the death penalty.  

Patrick Daugherty, a partner with law firm Foley & Lardner, told the publication the issues, this time around, will likely boil down less to outright auditor fraud and more to mundane issues, such FAS 157. We may see more settlements than trials, in large part to avoid the public relations hit that would follow. PricewaterhouseCoopers has already agreed to a near $100 million settlement with three pension funds that sued it and AIG for reasons not related to the recent bailout.    

We'll see how all this turns out. One company to watch is Deloitte. It's former clients include the likes of Bear Stearns, Washington Mutual and Fannie Mae. You can bet its legal team is in high gear right now. - Jim