Beyond the Engagement Letter

Source: Accounting Today

When it comes to avoiding malpractice claims, the engagement letter is a CPA firm's first line of defense. It's critical for a firm to spell out the scope of the work in an engagement letter and to communicate to the client what services the firm is not responsible for. But it doesn't end there. This article recommends other steps firms should take, including:

• Using “defensive documentation.” For example, a firm providing tax compliance services might send a letter alerting a client to internal control weaknesses, while making it clear that internal control advice is not within the scope of the firm's engagement.
• Educating employees on the use of social networking, to avoid having their statements used against the firm in court.
• Documenting the firm's due diligence in evaluating providers of data security services and other outsourced activities.
• Reviewing the firm's malpractice insurance policy to be sure coverage is consistent with the work the firm does. If the policy covers “accounting services,” does the firm provide services that fall outside that category?
• Watch out for “engagement creep.” If a client asks for work outside the scope of the original engagement, have the client sign another engagement letter.

For the complete article, read “Playing defense.”

From Accounting Today, May 1, 2011, SourceMedia Inc., One State Street Plaza, 27th Floor, New York, NY 10004, 800-221-1809.