Competency and Liability

Source: Bowman First Alert

Scarcity of talent has impacted the level of competency in accounting firms, according to a report by CAMICO Mutual Insurance Company. Because there is too much work, firms are taking on engagements for which they are not qualified. A history of claims at CAMICO indicates the risk is highest when firms enter a new niche without appropriate experience. Data indicate that services representing less than 15 percent of a firm’s service concentration produce losses of about 225 percent of their premiums. Clearly, dabbling in an area where the firm is not practicing the service often enough is highly risky.

Article V, Section .03, of the AICPA Code of Conduct states that competence “establishes the limitations of a member’s capabilities by dictating that consultation or referral may be required when a professional engagement exceeds the personal competence of a member or a member’s firm.” The problem is covered in many state codes as well.

To improve competency in a niche:

• Acquire CPE in the niche.
• Read professional literature.
• Acquire a designation in a specialization.
• Consult with another practitioner.
• Join a CPA society committee on a niche (e.g., estate planning committees).
• Join a specialized association or society (e.g., a business valuation association).
• Join an association of other CPA firms to facilitate consultations, cross-referrals, and exchange of expertise and information as part of the learning process.

Firms that do not have competency should refer matters to other firms.

To read the report, see When Competency Becomes an Ethics Issue…or More, click here.

From Bowman First Alert, the Bowman Accounting Report, Vol. IV No.4, Bowman Communications, 323 Wilcrest Drive SW, Atlanta, GA 30044-5253, 770-972-0783.