Avoiding Lawsuits

Source: Georgia Current Accounts

This article describes five ways CPA firms can increase their exposure to lawsuits and what preventative measures to take. Highlights include:

• Accounting rules: While accounting rules don't require certain procedures, e.g., confirmation of information in a compilation engagement, juries may not take that rule into consideration. So if something doesn't seem right to you, it is best to do some probing and make sure it is right. Then be sure to document it and communicate it.
• Documentation: If you advise a client to take certain steps, or to avoid certain actions, put it in writing and send it to the client. Juries may conclude that if the advice was not written, it was not given.
• Partnering with clients: Investing in client ventures can backfire. If the venture sours, juries may believe the CPA did not act in the client's best interest. Disclosure of the conflict of interest may not help, especially if the client's acknowledgement was given without the advice of its attorney. And be sure to check with your insurance company to see if its policy excludes losses on these kinds of ventures.
• Advising both sides of dispute: Avoid doing this. One side may assert that the CPA favored the other.
• Suing to collect fees: This often precipitates a countersuit by the client. And your insurance policy might not cover it.

From Georgia Current Accounts, http://www.gscpa.org/Content/ProfessionalResources/Publications/CurrentAccounts.aspx, January/February 2010, "Top Five Ways a CPA Can Be Sued," p. 8.