Emerging Issues That Increase CPA Firm Risk

Source: Inside Public Accounting

Ronald Parisi, CPA, JD, is national program director of CAMICO Mutual Insurance Co., the nation's largest CPA-owned provider of professional liability and risk management services. He says that compared to the current risk environment, "Enron was a blip." According to Parisi, several emerging issues are increasing the risk for CPA firms, including:

Price wars. The biggest claims result from audits. If reducing fees puts pressure on the audit budget, auditors may have less flexibility to follow leads, which may increase the potential for missing fraud. Also, treating accounting services as a commodity can erode the reputation of CPAs as trusted business advisors.

Hanging on to "C" or "D" clients. Weeding out these clients limits a firm's risk exposure, but many CPAs feel they have no choice but to hang on to every client they've got.

Client privacy. Protecting sensitive client data is a potential minefield, particularly with varying state laws that may be more restrictive than federal law. It's critical for CPAs to understand the applicable laws, particularly regarding retention and destruction of electronic documents.

Social media. Parisi recognizes the value of social media tools for enhancing client relationships. But it's important to educate staff on the potential consequences of their online conversations.

M&A. An active merger environment can increase the risk of claims. Often, after a merger, the expanded firm goes after bigger clients. But, Parisi warns, just because a firm is bigger doesn't mean it's smarter.

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From Inside Public Accounting, March 2010, "Risk Management for 2010 and Beyond -- Understanding Your Risk is Critical," The Platt Consulting Group, www.plattgroupllc.com. Subscription $409 per year; back issues -- nonsubscribers $50. 317-733-1920.