JohnF. Respante, The CPA Journal, October, 2014: 6-9 ProfessionalLiability Trends and Developments
Inthe article Professional Liability Trends and Developments, JohnRaspante admits that there have been an increasing number of claimsover the years. Most of the liability claims reported by CPA’sinclude historical claims such missing tax deadlines and the failureto detect fraud. With the increased growth of financial services,accountants are having to grapple with new emerging issues such astaking foreign banks into account, data and security breaches, beingsubjected to nexus examinations, increased mergers and acquisitions,firm registration and the changing business landscape.
Failureto file foreign bank activity reports is one of the main issues CPA’shave to deal with. The world has become a global village whichrequires businesses to set up a foreign bank account or conductbusiness transactions in foreign currency. CPA’s are usuallysubjected to blame when their clients do not file their foreignaccounts details for as long as 30 years. CPA’s have a provision tobring their clients to book via the offshore voluntary disclosureprogram and this could assist their clients in avoiding possiblesanctions.
Dueto increased business activity and competition, there has been asurge in the number of accounting’s mergers and acquisitions andthe development is likely to continue. Accountants are usually caughtup in the middle of claims due to the ever increasing allegations ofrising fees, prolonged engagement letters and staff turnover from thefirm that has been merged. Other issues that arise include thepotential of losing prospective partners and the resistance tolearning a new software program. Merger and acquisition problems canbe resolved by conducting due diligence and pointing out possibleareas of conflict in the future. CPA’s are now more than everbeing subjected to nexus examinations and their firms bearing heftypenalties. Most CPA’s are finding themselves between a rock and ahard place when they cannot explain the jurisdiction of their clientsoperating area. This is because most businesses conduct theirbusinesses across different state and the law requires them to filetheir taxes from the respective states. However, CPA’s have somereprieve in that they can avoid adverse penalties by taking thefollowing measures. The CPA’s should advise their clients on thepossibility of facing the law if proper tax filings are not adheredto.
Dataand security breaches have become the order of the day in businesssettings. This is because people may wish to have access to crucialinformation. CPA companies are entrusted with confidentialinformation about their clients and are vulnerable to security anddata threats. Proper screening and documentation of clients iscritical in safeguarding clients’ information.
CPAfirms are advised to be diligent when going about the registration oftheir firms. This is a very crucial process as it recognizes thelegitimacy of the professional services offered by the firm. Clientsmight lose their contracts and risk criminal sanctions whenassociating with unduly registered accounting firms. The increasingsize of claims is material and the nature of claims is changing withtime. Accounting firms are required to perform proper screening, havestrong engagement letters and have precise documents. CPA’s shouldconsider taking insurance policies to cover emerging exposure.
Thedynamic business world poses a great challenge for CPA’s in thefuture. Firm should ensure that the right documents follow the duediligence in order to exonerate themselves from litigations. Firmsshould seriously consider taking insurance policies to mitigatefuture losses due to other emerging issues.