Data from CPA Mutual, an accounting firm liability insurance provider and a national risk retention group, indicated that firm claims having real expenses paid grew to 41% since 1998. On average, one liability matter can be experienced by accounting firms for every 38 employees annually.
Liability matters for accounting firms
This is not due to them being less cautious towards their practices, it is due to CPAs being a quick target for lawsuits since they have accountant professional indemnity insurance, with the addition of labour shortage, and managers getting excessively burdened to risk having their qualified members deal with engagements.
Aside from having the right professional liability insurance coverage, the accounting firms can also add these strategies below in order to practice management. These steps can help avoid claims, or properly manage them, according to the CPA Practice Advisor.
Ways to avoid or prepare for CPA legal claims
Accounting firms should have sufficient senior level staff to supervise every engagement. Prior to them adding new clients, they must consider if they have qualified people to deal with these engagements.
Document retention policy
During a lawsuit, electronic and paper files are discoverable. These comprise of work papers, as well as e-mails, blogs, instant messages, text messages and other messages which are stored electronically. Any firm’s document retention policy must comprise of all electronic communications, with those done in business phones and personal home computers included.
Staff should be reminded about anything written being discoverable. When doubtful, sensitive information should be delivered in person, and communication delivery to clients or other staff must be determined correctly.
Contracts and invoices
Contract language is one of the more dangerous liability risks. With the addition of specialized service niches, they are not also updating letters of engagement and invoicing. They get into problems like consulting tax implications which tie to estates or investments. Even an innocent call when not documented properly creates an appearance of legal or investment advice offered by an accountant. When it happens that a client’s estate or investment gets into issues, accounting firms should be able to demonstrate its role clearly.