Accounting is a Risky Business
Source: Accounting Today
Bill Thompson, president of CPA Mutual Insurance Company of America, says that accounting practice today is riskier than it was five years ago. One reason for this, he says, is that judges are less likely today to summarily dismiss claims against CPAs. And in the current economy, CPAs are often the “last men standing” in the eyes of plaintiffs' attorneys.
Ron Parisi, executive vice president of risk management for Camico, observes that over the last several years, CPA firms haven't increased their liability policy limits to keep pace with their escalating exposure. Firms should determine appropriate policy limits, he says, based on “the complexity of services they offer and the size of their clients.” Parisi also warned small and midsized firms to steer clear of providing tax advice in areas for which they lack sufficient expertise, noting an uptick in malpractice claims involving tax services.
Firms should also be aware that the bad economy has increased the number of claims. Some arise during the transition period when a smaller firm merges into a larger one, because partners are distracted from individual client issues. Others are caused by cost-cutting measures, such as staff reductions, which can put a strain on a firm's resources.
During challenging times, it's critical for firms to avoid being lax about engagement letters. Many claims arise because of miscommunication or ambiguity about the scope of an engagement and the CPA's responsibilities.
Another area to consider is “cyber liability” in connection with client data. Firms should be sure that they protect client information by using encryption, maintaining up-to-date antivirus software, and training employees to recognize phishing schemes and other frauds. Firms should also check to see whether their malpractice policies cover cyber liability.
For the complete article, read “Target: CPAs – Liability claims and cases are on the rise.”
From Accounting Today, July 1, 2011, SourceMedia Inc., One State Street Plaza, 27th Floor, New York, NY 10004, 800-221-1809.