CEO and Founder CorpNet
Share this content

Eight Tips for Reducing Professional Liability & Safeguarding Your Practice

The pandemic disrupted business as usual, and for accounting professionals, this has meant heightened concerns about liability. How can you protect yourself in the face of shifting clientele and constantly changing tax laws? Expert Nellie Akalp offers 8 simple tips to keep your firm out of the courtroom.

Aug 19th 2020
CEO and Founder CorpNet
Share this content
liability
FangXiaNuo_iStock_liability

In my last blog post on AccountingWEB, I discussed some of the main problem areas causing potential liability issues for accountants in this era of doing business amid the COVID-19 pandemic. In this article, we’ll explore some strategies that may help you reduce your liability risks and enjoy peace of mind.

There are always risks that come with operating your own business. Fortunately, with some awareness and planning, accounting firms can take steps to help reduce the likelihood of liability issues.

1. Have Explicit Client Engagement Letters and Contracts

Client agreements and letters of engagement that are thorough and not open to interpretation can help avoid disagreements about services, the scope of work, responsibilities, and pricing. Setting clear expectations from the start makes it less likely that misunderstandings will occur and escalate to create legal problems.

Also, keep in mind that with COVID-19 creating changes in tax reporting, requirements, and filing deadlines, the advice and information that an accountant provides today to a client may not be ideal or accurate after days, weeks, or months from now if tax laws change. It's essential that firms make clients aware of this—again, setting realistic expectations.

2. Don’t Go Beyond Your Realm of Professional Expertise

If clients press you to provide services that you are not well-qualified to handle, resist the temptation to go beyond your comfort zone. If you don't feel confident in your abilities or knowledge level, it could lead to subpar work that leaves clients dissatisfied or worse.

And, of course, accountants should not offer advice on or perform services beyond what they are licensed to provide legally.

3. Send Important Documents Via Certified Mail

Certified mail provides the sender with a receipt of proof that they mailed a document to the recipient. It also tracks when an item was delivered (or a delivery attempt was made). If a client claims they never received important paperwork, certified mailing offers proof that the documents were sent and that delivery was attempted or successful.

4. Keep Accurate Memos and Notes on File

Keep detailed notes and records from meetings and other interactions with clients. Make sure your entire staff understands the importance of documenting dates of engagement, actions taken, and communications. The more documentation you have about what transpired during client meetings, phone calls, emails, etc., the more information you have to support your business if claims or complaints are brought against you.

5. Ensure Computers and Data are Protected

To lower the risk of falling prey to cybersecurity threats, take measures to protect your electronic devices and customer databases. Stay current with the latest operating system updates on computers, tablets, and smartphones. Also, install reliable anti-virus and anti-malware software, and use strong passwords for systems and websites to help avoid infiltration by hackers. Further, be choosy about whom you provide access to your accounts and confidential data. Prepare your employees, as well, by training them to recognize phishing and other cybersecurity threats.

If you’re unsure about how secure your data is, consider having a trusted data security company perform an audit to assess your cybersecurity risks and propose solutions to help minimize them.

6. Vet Clients Properly

Before signing on clients, ask plenty of questions to determine if they're an ideal fit for your services and expertise. The more compatible their needs are with your capabilities, the more likely you will deliver on their expectations and provide a stellar customer experience.

Also, stay alert for warning signs that may indicate a client is quick to make legal claims against businesses. Even companies and professionals that do everything ethically and responsibly can become victims of clients who are serial plaintiffs. Be wary if a client has gone through multiple accountants, and ask why those relationships didn't work out.

7. Stay Up to Date on all Business Compliance Responsibilities

Accounting firms registered as LLCs or corporations must keep current on all state compliance obligations for their entity type. Failure to do so could result in a court of law determining that the business owners have "pierced the corporate veil." If that happens, the business owners may be held personally responsible for any legal and financial claims against the company, putting their personal assets at risk. Some common compliance requirements include:

  • Renewing the business license and permits
  • Filing state annual reports
  • Holding an annual member or shareholder meeting and recording minutes
  • Maintaining a registered agent

8. Get Guidance from a Risk Management Specialist

Operating a business will never be a risk-free endeavor. However, there are things accounting firms can do to lessen their chances of facing legal battles. I have shared in this article a few ideas that might help, but they are not meant as—nor are they a substitute for— professional legal advice. I encourage you to get guidance from a reputable risk management attorney or specialist to determine what measures will best protect your businesses and personal assets. We’re living and working in tumultuous times—have you taken the time to make sure your firm has measures in place to mitigate risk?

Replies (1)

Please login or register to join the discussion.

JamieEllisCOO
By JamieEllisCOO
Aug 25th 2020 04:11

Thanks for the article. I would also recommend that in engagement letters, firms add a force majeure clause that includes protections for pandemics (among other things).

Thanks (0)