Protecting an Accounting Firm from Litigation through Knowledge and Ethics

A lawsuit alleging deficiencies in engagement performance, whether the allegations are true or not, can damage a CPA firm irreparably! Errors and omissions insurance providers have focused on ways to reduce accountants’ and auditors’ professional liability for many years. Still, many CPAs practicing for more than a decade are likely to have been sued at least once. Here are 10 ways a CPA firm can reduce professional liability in its accounting and auditing practice. Get rid of high risk clients and troublemakers. Continuing to serve clients that are risky, that require constant hand-holding, that are uncooperative or that argue over fees limits productivity of CPA firm personnel and often creates a “crisis-oriented” culture. It also builds a client portfolio of less-than-quality clients and increases the likelihood of lawsuit!
Make sure in-charge accountants and engagement leaders know what they are doing. Due to employee turnover, business growth or other reasons, staff personnel are frequently promoted to these leadership positions without adequate experience and training. The strongest defense against the likelihood of performing substandard work is the knowledge and experience of in-charge accountants and other engagement leaders. Training investments are the best malpractice insurance! Tailor engagement practice aids to meet the needs of clients. Professional judgment is now required for both audits and reviews. Professional judgment cannot be demonstrated by simply completing all forms and checklists from a canned set of practice aids. Documentation of thinking and reasoning is required!