Frequently asked risk management questions

The Accountants Risk Control team at CNA, the endorsed underwriter of the AICPA Professional Liability Insurance Program, fields thousands of questions annually from CPAs seeking risk management advice. They’ve summarized the frequently asked questions below so you can easily access resources to manage professional liability risk in your practice. Engagement letters are so important.Understanding the risks that you allow into your firm and managing and monitoring them once they’re there is incredibly effective in mitigating the risk of a future claim.

I have a new client opportunity. What do you think?

Be mindful of the company you keep. Working with clients that are the right fit for the firm affects staff morale, profitability, and professional liability risk. Is the new opportunity for a celebrity, high-net-worth, or high-profile client? Proceed with caution, as claims related to these clients can be substantial. 

A client has asked me to perform XYZ service. What are the risks?

It is required that CPAs possess the “appropriate technical qualifications to perform professional services.” If a claim arises, a plaintiff attorney may question the CPA’s competence as the reason an error was made. 

Many firms have grown through the provision of consulting and client accounting services. Such services are not without risk. Claims that arise related to these engagements are often the result of disagreements related to scope. Aligning expectations between the CPA firm and the client is critical to help ensure a smooth delivery of service and to mitigate the risk of a claim. 

Longtime client asked you to be a trustee? This honor brings with it significant risk and the potential for a substantial claim. 

I no longer wish to provide services to a client. What should I do?

Whether the firm has outgrown the client, the client the firm, or if it’s just no longer the right fit, sometimes the best decision is to terminate a client relationship. Regardless of the reason, severing ties with a client should be done in a direct and professional manner. Tell the client what they need to do to move on from you, including any deadlines and the consequences of not meeting those deadlines. 

My deadbeat client owes me money. Can I send them to collection or sue for fees?

Please, please, please don’t. Doing so nearly guarantees that the client will bring a counterclaim for negligence, and the lost time and money one spends defending the counterclaim almost always is more than what one would have received from a collection activity. 

OK. I won’t sue for fees, but can you help me avoid this situation in the future?

Sometimes, overruns or additional fees are due to the provision of additional services, which may be only tangentially related to the original service. This scope expansion can lead to financial risk as well as professional liability risk. Finally, having a difficult conversation about fees is one that many CPAs avoid or put off, to their detriment. 

How do large claims arise?

Among the common indicators of a high-severity claim, one of which is the failure to detect a theft or fraud at a client. This assertion is seen in claims relating to all areas of practice, not just audit. 

Another warning sign of a large malpractice claim? Situations where the CPA is alleged to have violated the Code. Unfortunately, the mere perception of an ethical violation can thwart a claim’s defense. 

You’ve sufficiently scared me. What can I do to help mitigate the risk of a claim?

Client and engagement acceptance and continuance, engagement letters, communication, and knowing and correctly applying professional standards are universal risk management practices for any service. Leverage resources available to you, including those offered by your professional liability carrier and the AICPA. Regular risk management training of all 

By Sarah Beckett Ference, CPA

August 1, 2021