5 Smart Strategies to Help CPAs Avoid a Lawsuit

by Sarah Beckett Ference, CPA, CNA | August 20, 2019

Here are five ways in which CPAs can keep the discussion going and avoid lawsuits with clients:

  1. Level set expectations. Establish a “meeting of the minds” between the firm and client. Ask yourself questions such as, does the client understand the services it needs? Do they understand the type of services the firm can provide and how services may differ? Does the client understand and accept their responsibilities? Memorialize expectations in an engagement letter.
  2. Play to your strengths. Define the firm’s niche and practice specialization and stick to it. Avoid clients or engagements that are not a good fit for the firm or for which the firm lacks the requisite technical expertise. It may seem counter-intuitive to turn down a new business opportunity. However, it is nearly impossible to stay current with the volume of ever-changing laws, regulations, and professional standards that apply, especially in practice areas and industries in which the firm has no prior experience.
  3. Stay on Target. Stick to the scope of services specifically outlined in the engagement letter. When new information comes to light, or the client realizes its service needs have changed, manage implementation of any changes appropriately. Document any subsequent change in the scope of the engagement with the client, whether it is through an email, an amendment to the engagement letter or a new engagement letter if the scope of service has changed significantly.
  4. Get paid for your work. One of the most predictable ways to have a claim made against you is to sue your client for unpaid fees. To help avoid this situation, collect a retainer for all new clients and those clients known to the firm to be slow or late in paying. In the engagement letter, include billing terms and a withdrawal provision for non-payment of fees. Once work begins, bill timely and regularly. Monitor collections to help ensure the client does not become delinquent.
  5. Talk first. Before a dispute escalates, consider an alternative dispute resolution mechanism such as mediation. In mediation, a third-party mediator works to find areas of agreement between the parties in conflict in order to reach a resolution. Mediation is confidential and non-binding and typically less costly than litigation. Consider including an engagement letter clause requiring mediation as the first step toward resolution.

Sarah Beckett Ference

Sarah Beckett Ference

Sarah Beckett Ference, CPA, is a risk control director at CNA. She can be reached at specialtyriskcontrol@cna.com. Continental Casualty Company, one of the CNA insurance companies, is the underwriter of the AICPA Professional Liability Insurance Program. Aon Insurance Services, the National Program Administrator for the AICPA Professional Liability Program, is available at 800-221-3023 or visit cpai.com.

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