Accounting malpractice lawsuits frequently result in plaintiff-oriented jury verdicts, according to a recent Accounting Today article titled, “Liability Risk on the Rise for CPAs.”
In a world of perpetually changing tax codes, increasing threat of cyber attacks, and growing accounting fraud, CPAs are up against professional liability challenges that, if not held in check, could lead to loss of reputation or financial ruin.
There are several steps CPAs can take to guard against the increasing professional hazards, as outlined below.
- Have liability insurance, and buy it if you don’t have it.
- Have adequate cyber coverage in your liability insurance policy that includes client notification, credit monitoring, post-breach forensics, cyber-extortion, terrorism, multimedia liability and assessment.
- Look for continuity and experience in your insurance program.
- Write an engagement letter that clearly articulates the expectations, scope of services, and limitations of the project including fraud and theft detection. Make sure it is signed.
- Be aware of “engagement letter drift.” If the direction of the engagement changes in any way, re-state the expectations in another signed engagement letter that documents these modifications.
- Always follow the standards set for by the AICPA.
- If litigation does occur, resolve it as fast as possible. Don’t try to drag it out. Most malpractice cases are settled before they get to trial.
When things don’t go well, everybody will look to blame the accountant, but don’t give clients a reason to.
Another way to minimize liability risk is to terminate relationships with clients that are deemed to be troublesome. Signs of high risk clients can include sloppy record-keeping, failure to anticipate compliance deadlines, slow payment, or difficult personalities.
A senior vice president of loss prevention services at Camico, was quoted in the Accounting Today article. “It is important to look for a partner that is staying current with the changes and complexities that are being faced by today’s CPA.”
“We’re seeing accounting firms of all sizes evolving to meet changes in the complexity of the regulatory environment and the standards being promulgated. We believe that good client service equals good risk management,” according to Camico. “Good client service goes back to being competent to render the services, and also to being sensitive to communicate, educate and document with their clients.”
Insurance defense law firms that defend CPAs, accountants, and other professionals against errors & omissions (E&O) types of claims will want to stay abreast of the latest accounting risks. Professional liability counsel members can help clients minimize risk through targeted CLE-type training programs.
Click on the link to read the full article on CPA liability risk.