Certain recurring issues, some of which are avoidable and others of which can be mitigated, present themselves in representing smaller accounting firms. These firms generally, though by no means exclusively, tend to represent non-publicly held companies. Nonetheless, many of them provides services, including attest services, to entities that are subject to governmental oversight, such as employee benefit plans and not-for-profit and charitable organizations. Recognizing these issues and helping clients address them proactively can help reduce significantly the risk of liability claims as well as help foster long-term relationships that emphasize loss prevention and advice concerning issues that will give the firm a more solid and high-quality client base, rather than just defending liability claims.
Annual engagement letters should be sent for each representation, including those as potentially straightforward as income tax preparation services. As with any engagement, a proper engagement letter should prevent after-the-fact attempts to expand the scope of the actual services, claims that the client did not understand the nature and scope of the engagement or any limitation of the engagement or services that were being provided, assertions which are frequently raised in claims alleging the failure to detect defalcations. An annual engagement letter should also assist in defending against claims of continuous representation and other issues facing tax preparers, including FBAR violations. In tax preparation and other situations where a stand-alone representation letter will not be obtained, the engagement letter should be countersigned by the client to confirm his understanding of the nature of the services to be provided and the client’s own responsibility, including to provide complete and accurate information. The firm should not release its work product prior to receipt of the near counter-signed letter.
Lost Client Relationships
A client frequently has contact with one only member of a smaller accounting firm. This not only can create more of a personal rather than firm-wide relationship, which could be jeopardized by any separation at either the firm or client level, but also increases the chance of errors going undetected by being repeated in subsequent years due to the lack of any substantive review of the work being performed. The failure to expand the client relationship is a concern for both accountants who hope to sell their practice and firms that seek to grow by acquiring the practice of retiring practitioners, since such clients may be significantly more difficult to transition and retain than those who are familiar with several professionals who will be joining the acquiring firm.
The Practical Lawyer
CLICK HERE for the free download of the full article, which was originally published in ALI CLE’s The Practical Lawyer.
Interested in learning more about this topic? Take a look at the upcoming course, Accountants’ Liability 2019: Strategies for the Profession in an Era of Heightened Enforcement, held Thursday-Friday, October 17-18 in Washington, D.C.