Diversifying Your Service Offerings: Handle With Care
Source: Journal of Accountancy
In this article, Journal of Accountancy addresses the risks of diversifying your firm's offerings — particularly the dangers of “dabbling” or taking on specialized work without the necessary training or experience. The “Due Care” section of the AICPA Code of Professional Conduct requires accountants to operate with competence and diligence, maintain a high level of professionalism, and recognize their own limitations.
To gain insight on the issue of competence and professional risks, JofA interviewed three attorneys who specialize in defending accountants' professional liability claims — Dianne Wainwright (Pittsburgh), Thomas Falkenberg (Chicago), and Kevin Murphy (Washington). Portions of the Q&A are summarized below:
How often does competence factor into defending accountants?
Falkenberg: 25 percent of my cases factor in competence.
Murphy: Competence is regularly an issue with regard to tax engagements — especially those in niche industries/services.
Wainwright: A plaintiff's attorney will gather extensive information about the accounting team's background, training, and expertise.
For every new service offered, there must be a first time the firm provides the service. What insight can you share from defending “first time” service?
Murphy: Competence will be challenged. Firms should carefully document their research on the service and specialized industry in addition to related professional guidance and standards. Any education directly related to the specialized services should also be documented.
In professional liability claims, is the need for specialized industry knowledge an issue? How can CPA firms minimize risk in such cases?
Falkenberg: Plaintiff attorneys will look into how many audits the firm has previously performed within that specialization. Consulting an industry expert can help; however, the firm must have enough industry knowledge to verify that expertise.
Murphy: This comes up in highly regulated industries, such as insurance, banking, or healthcare, as well as in government and nonprofit agencies.
For the complete article, read “The Dangers of Dabbling.”
From Journal of Accountancy, November 1, 2015, www.journalofaccountancy.com/Issues/2015/nov.