The Prudent Accountant

At the recent AICPA National Advanced Accounting and Auditing Technical Symposium (NAAATS), one of the outstanding speakers was Mary Eklund. Those of you who’ve heard Mary speak know she can be entertaining while at the same time scaring you to death. Mary is an attorney who defends accountants in law suits. She does a lot of work for CAMICO, the insurance company that insures accountants (Disclosure. Mary presented one of the keynote speeches and was sponsored by CAMICO). One of the points she made is that we all need to keep in mind is that a bad economy leads to more lawsuits and threatened claims. Why? Because everyone is looking for money.

Some of the people who are looking for money are:
Clients who have had employees embezzle funds.
Clients who have lost money on investments.
Clients going through a divorce.
Clients in partnerships that are breaking up.
Third parties for clients involved in insurance or other financial fraud.

If you think about it I bet you could come up with a lot more to add to this list.

How do you protect yourself? Mary had some suggestions and I'll give you two of them that stuck in my mind after we review what we already know. As a reminder, here are just a few suggestions.

Have good quality controls in place.
Evaluate your clients not just when you acquire a new client but make it a practice to re-evaluate them on a regular basis to see if you want to keep them as clients.
Make sure the client writes the representation letter on their letterhead.

The AICPA has quality control standards that provide guidance to CPA firms for their system of quality control for their accounting and auditing practice. And of course there is the Code of Professional Conduct. And don’t forget Practice Alert 03-3, Acceptance and Continuance of Clients and Engagements.

Mary Eklund said two things that really stuck in my mind: (1) Apply professional skepticism and (2) stay away from emails!

About those emails. Don’t put anything in an email you wouldn’t want to see in court. We all know that stuff put in a computer is not really gone when we hit delete. It just gets written over. There are companies that make a very good living finding “deleted” information.

One other thing. It’s probably not a good idea to sue a client over nonpayment or to turn them over to a collection agency. Suing a client quite often leads to counter-suits.

Naturally we’re not giving any legal advice nor was Mary Eklund in her remarks. If you stop and think about it, everything she said and what you have read here is what the “prudent accountant” should do in managing an accounting firm.

You might want to consult your own attorney on how you can protect yourself from potential lawsuits, or at least mitigate the effects.

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