The current financial environment has placed increased pressure on both accountants and their clients, which in turn can lead to increased risk of liability.

"There's additional pressure on clients in a competing marketplace, and this puts a downward pressure on fees that CPA firms can collect," said Alvin Fennell, vice president of sales and underwriting at Aon, the national program administrator for the American Institute of CPAs' professional liability insurance program. "Having to do more and earning less revenue puts a strain on internal controls. It may lead them to take on engagements in which they're not proficient."

For example, an accountant who is more familiar with tax work or bookkeeping may begin to look into audits, or an audit firm may look to do audits in industries in which it lacks expertise, opined Fennell: "There's a blurring of lines as to what the client base should be. Regional firms are now competing with smaller firms for clients - they're not walking away based on size. At the same time, smaller firms might get into trouble because they don't have the experience in a more complicated industry."

From the tax practitioner's perspective, the increasing complexity in professional regulation is a growing issue, noted Joe Wolfe, assistant vice president of risk control at CNA, the underwriter of the AICPA program. "Tax law tends to be complex," he said. "It's important that the practitioners understand how the different issues impact their clients, and the advice they give their clients will be an ongoing issue. When providing tax advice,practitioners shouldinform clients that their advice is as of that date, based solely on the limited information provided,is subject to change based on changes in tax regulation and law, and that they assume no responsibility for providing updated advice at a later date."

COMMUNICATION IS KEY

Foreign bank account reporting is another continuing issue, Wolfe pointed out. "The UBS case got everyone's attention," he said. "We continue to get inquiries over our hotline on this. If a client brings to your attention previously undisclosed foreign income, you need to consider how and if to communicate with your client, because the accountant-client privilege is narrower than the attorney-client privilege. In some cases it may be best to work through the client's attorney when you provide advice on these issues."

Client re-acceptance is a way of dealing with changing circumstances, explained Ron Parisi, CPA, Esq., national program director at Camico Mutual Insurance Co. "Don't take for granted your original assumptions about your clients when you first took them on," he said. "We're seeing a dramatic change in the stability of individual clients. CPAs aren't looking hard enough at their current client lists. They should be taking appropriate measures in considering whether to continue with a client, and if so, what additional steps must be taken to adequately service the client while protecting the firm from liability."

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