Accountants' Liability: Minimizing Your Exposure
Source: Public Practice
This issue of Public Practice includes reprints of a two-part series on minimizing legal risks from Today's CPA, the magazine of the Texas Society of CPAs. The authors, two attorneys experienced in representing CPAs, begin by noting that “The public practice of accountancy has inherent liability risks that can be planned for and minimized, but not eliminated completely.”
Part One focuses on practice structure and operational issues. It covers:
- Professional liability insurance, including the risky proposition of “going bare” – that is, going uninsured to be an “unattractive target” for a lawsuit;
- Common mistakes CPAs make, including missing deadlines, undertaking assignments for which they have insufficient experience and/or training, and failing to communicate with clients; and
- Client base control. Lawsuits often arise when a CPA accepts, or fails to terminate, high-risk clients.
Part One also discusses firm organization and maintenance, training, client communications, and client relations.
Part Two addresses legal liability issues, including to whom a CPA can be liable, fiduciary duties, and statutes of limitation. It also discusses “spoliation of evidence” – that is, destruction, loss, or alteration of papers, computer files, voice mails, emails, and other records, either during the lawsuit or when a party knew or should have known a lawsuit was imminent. Spoliation can be intentional, accidental, or negligent, or it can result from poor document retention practices. Potential penalties include an instruction to the jury to presume that the spoliated evidence would have supported the plaintiff's claim.
Part Two also discusses the impact of a lawsuit on a CPA and the calculation of compensatory and punitive damages.
For the complete articles, read “Minimizing the Legal Risks of CPA Practice – Part One” and “Minimizing the Legal Risks of CPA Practice – Part Two.”
From Public Practice, Texas Society of CPAs, February 2013, www.tscpa.org.