CEO and Founder CorpNet
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What Kinds of Liability Should Accounting Professionals Be Concerned About Right Now?

Minimizing legal risks to your business has always been important. However, with so much uncharted territory and change within the current environment, it has become especially critical to look out for situations that could become problematic liability issues for your firm. 

Jul 1st 2020
CEO and Founder CorpNet
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liability
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Stephen Covey once said, “If there’s one thing that’s certain in business, it’s uncertainty.”

That has never been more accurate than now. With the coronavirus pandemic persisting, nearly every company in every business sector faces uncertainty. As accounting professionals, these times of uncertainty bring a double dose of challenges your way:

  1. Your own set of unknowns regarding what’s ahead for your business
  2. The unknowns that your clients expect you to help them navigate through

Of course, minimizing legal risks to your business has always been important. However, with so much uncharted territory and change within the current environment, it has become especially critical to look out for situations that could become problematic liability issues for your firm. 

Speaking with a knowledgeable attorney who specializes in risk management can help immensely. Someone with that professional knowledge can offer expert guidance to help your business steer clear of legal problems. 

As you prepare to speak with a risk management expert about what you need to watch out for, below are some areas you may want to discuss. What I share here is not a substitute for professional legal advice. Rather, it is some food for thought about what to consider. This is the first blog article of two that will discuss liability during these uncertain times. My next article will share some ideas for how accounting firms might help reduce risks.

1.  Pandemic-Induced Tax Payment and Reporting Due Date Changes

Along with the IRS's due date extensions, many states and localities have modified reporting and tax payment schedules. Failing to stay on top of those that apply to clients and communicating misinformation could result in issues for clients—and therefore, also for the accounting professionals that incorrectly advise them.

2. Scope Creep 

Getting requests from clients to do a bit more than what may have been initially requested in the business relationship is nothing new. However, clients may now be more apt to ask their accountants for assistance beyond their original scope of engagement. For example, some may be looking for help with completing applications for federal, state, and local COVID-19 related funding. Others may be asking questions and requesting advice on matters beyond what's described in their engagement letter. When there's no clear statement of services and responsibilities, or an accounting professional provides services they're not licensed or allowed legally to offer, there's room for liability issues.

3. Data Breaches and Cyber Security Slips

It has always been critical to protect clients' data. With the pandemic bringing a surge in cybersecurity scams, taking measures to help avoid data breaches has become even more imperative. Accounting firms, their employees, and their contractors must all remain more vigilant than ever before to recognize phishing and other fraudulent activity that could put customer information at risk.

4. Taking on the Wrong Clients

Firms that saw a decline in business during the pandemic may have been tempted to accept less-than-ideal clients to keep cash flow positive. However, not vetting clients properly or ignoring warning signs when exploring a new business relationship can create several problems. If an accounting business takes on a "bad egg," that new client will likely demand a lot of extra effort and energy from the firm and its team. It could also result in additional legal risks, particularly if the client has a history of making claims against accounting firms or other professional services providers.

5. Neglecting Business Compliance Formalities

Most accounting firms have business compliance requirements to fulfill to operate their companies legally. For example, accountants that have formed their company as an LLC or a corporation must retain a registered agent at all times and may have to submit an annual report to the state. Failure to follow through with any compliance obligations can put an accounting firm's owners of being held personally responsible for any debts or legal liabilities of the business.

Where Do You Go From Here?

To help ensure your accounting firm isn't putting itself at legal peril, consider speaking to an attorney with risk management knowledge who can assess your situation and offer professional advice.

Stay tuned for my next article, which will share some ideas for how accounting businesses can help avoid the five potential pitfalls I mentioned in this post.

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