Avoiding Lawsuits

Source: Accounting Today

Use the following guidelines to mitigate litigation exposure:

• Perform due diligence before accepting new clients. Identify litigious firms through Internet searches and review of public records. Beware of firms that change accountants frequently. Review your exposure to existing clients who pay late or are involved in high-risk activities.
• Don’t work without engagement letters, and update engagement letters for new services.
• Account for all documents. Missing documents can potentially be incriminating.
• Communications must be objective. Avoid emotional remarks, personal opinions, indiscriminate statements, hypothetical speculations, or comments that can be interpreted as decisions.
• People assigned to engagements should have the appropriate training and expertise.
• Comply with the audit program or agreed upon procedures, and record every procedure employed.
• Questions asked by clients should be answered and recorded.
• Test representations made by management, and beware of management that expects you to accept representations without testing.
• Communications with third parties (such as lenders, vendors, etc.) about a client’s financial circumstances can create liability for misrepresentation.
• When a disagreement with a client occurs, consult with counsel immediately.

For more articles on this subject, also see the following articles from the archives of CPA Leadership Report:

From Accounting Today, June 18, 2007, SourceMedia Inc., One State Street Plaza, 27th Floor, New York, NY 10004, 800-221-1809. For the complete article, click here, then select the article Commentary: 10 Ways to Avoid a Lawsuit from the June 18, 2007 issue.