We are all living in uncharted territory. While no one knows what will happen with the Coronavirus and the economy, one thing is certain – in times of uncertainty, the number of malpractice claims go up.
What does that mean for accountants and CPA firms?
It means accountants and CPA firms need to focus now on ways to avoid those possible claims in the future. Accountants and CPA firms should also consider these best practices as the Coronavirus pandemic continues to develop.
Get an Engagement Letter
One of the first ways to avoid a possible claim is to draft and execute an engagement letter. The engagement letter should be specific to what services the accountant or CPA firm are providing. It may even outline what services are not provided (engagement is not designed to detect fraud, etc.) Getting an executed engagement letter is just the first step to using an engagement letter to limit exposure.
This is especially true in the current coronavirus pandemic. Because of the trickling effects of COVID-19, accountants and CPA firms may be providing additional services to their clients that they were not providing a month ago. If so, accountants and CPA firms should update their engagement letter to reflect those additional services. Unfortunately, the saying often rings true “no good deed goes unpunished.” Get an engagement letter and stick to those services that are outlined in that letter.
Not Ignoring Increased Risk of Fraud
Most CPA engagements are not designed to catch fraud. That does not stop people from suing their CPA for failure to detect fraud. When it comes to embezzlement, it often starts small and builds. Often the embezzler either is over their head financially or simply thinks they “deserve” the funds they are stealing. You can imagine how these conditions are increasing in our current economic climate. There also may be pressure for management to use “creative” accounting to avoid bankruptcy.
This means if you are doing an audit, document how you considered fraud. If you are doing a tax return engagement, inform your client to only send you documents that you need to prepare the tax return engagement. If your engagement calls for you to receive a cash reconciliation, make sure the math adds up. CPAs are not trained detectives, but if something stands out, do not ignore it.
Check in with Your Cybersecurity
Not every CPA firm has the same cybersecurity tools and resources, but every Texas CPA and accounting firm must take “reasonable measures to maintain the confidentiality of the client records”. With many companies temporarily shifting to work from home, phishing scams and IRS frauds are increasing daily. The federal tax return extension provides an even larger window for scammers to steal your client’s identity.
If firms have some down time, now is the time to get with your IT professionals to ensure your cybersecurity is up-to-date. Now may also be the time to train individuals in recognizing phishing scams. There are several online classes designed to help individuals recognize phishing scams. Some HR platforms offer these online classes for free, and they can be a good refresher on how to recognize and avoid cybercrimes.
Every situation and every engagement is different. These best practices may not apply to every situation or every engagement. This article is not legal advice but outlines some examples of best practices that may help CPAs avoid litigation claims. If you have any specific questions or want any further guidance on ways to avoid malpractice claims, please reach out to your attorney for more information.