While accounting firms branch out into niche practice areas, the most severe exposure to malpractice liability in terms of dollars remains audit, while the most frequent number of claims is still in tax, according to Tom Herendeen, vice president of the specialty lines division of Philadelphia Indemnity Insurance Co.Although post-Enron regulation has affected the way that accountants service their publicly held corporate clients, those who service private companies should not become overly comfortable.
"Even work with a closely held corporation has its risks," said Redwood City, Calif-based Camico vice president Ric Rosario. "For example, suppose a 60 percent owner commits fraud and the other 40 percent end up suing. It's not new, but we've decided that it is important to spend a lot more time training and talking about these issues. From an exposure standpoint, the key concern is audit."
Sarbanes-Oxley gives accountants many opportunities to advise companies in interpreting and implementing the act, but they should be aware of the increased exposure to risk. The issue was raised at a recent symposium of the Professional Liability Underwriting Society, a trade association.
Companies have a continuing obligation to stay on top of the many changes involved in implementing Sarbanes-Oxley, according to David Sukert, senior vice president of underwriting at Aon Insurance Services.
He said that market reaction so far has not been different from other areas of practice - client selection is still the theme. Before taking on a client, consulting firms need to be sure they can do the job and have the requisite personnel.
Mario Lemme, president of Lemme Insurance Group Inc., agreed, observing that the shortage of qualified people in accounting is a concern.
Thomas Manisero, a member of Wilson, Elser, Moskowitz, Edelman & Dicker LLP, and co-chairman of the firm's professional liability practice team, addressed the claims likely to be generated by SOX consulting. He suggested that the first step in protection for consulting firms is to put clear provisions in engagement letters.
Manisero cautioned, "There is an opportunity for exposure for these firms - this is not a risk-free way to make money." There are risk management tools that exist that firms should use, including having liability provisions in their engagement letters, he observed.
Meanwhile, a survey by Ernst & Young of corporate tax directors found that, as legislative and regulatory changes around the world have made tax risk planning a top priority, many companies are aligning their tax strategies with their organization's overall enterprise risk profile to meet the challenge.
"Tax departments are playing a much more important, immediate and visible role as organizations wrestle with the increasing demands of corporate governance and regulatory compliance," said Mark A. Weinberger, Ernst's Americas tax vice chair. "We're seeing significantly increased alignment between tax risk and overall enterprise risk management, and with it a tax director with increased responsibilities and far more constituents to satisfy."
While CPA liability insurance is transitioning from a hard market, according to Rosario, accountants do have a number of carriers to choose from.
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