Don't Do Management's Job for Them

Source: Journal of Accountancy

CPAs who cross the line between advisor and member of the management team risk liability to the client as well as to third parties. For example, a CPA who agrees to “take care of” reviewing the monthly payment register and paying bills might be liable for failing to detect an employee's embezzlement. And a CPA who personally deals with a client's lender might be perceived by the lender as a de facto CFO or controller, which can also lead to liability.

Professional liability policies typically don't cover claims that arise from a CPA's performance of management duties or assumption of management responsibilities, so it's important to take steps to avoid these situations. These steps include using engagement letters that clearly define the scope of services and the parties' relative responsibilities; documenting additional services with an addendum to the engagement letter; documenting all oral advice and recommendations; and avoiding responsibility for management decisions or duties, such as approving journal entries or business plans.

CPAs who attend board meetings should arrange to be first on the agenda and exit the meeting once their issues have been discussed. 

For the complete article, read “The pitfalls of assuming management responsibilities.”

From Journal of Accountancy, November 2013, www.journalofaccountancy.com/Issues/2013/Nov.