Geneva, Ill. (May 19, 2003) -- Taking on bad clients and a lack of documentation are two of the top risks facing CPAs, according to an expert in professional liability programs for accountants.

Poor client selection can often lead to a malpractice claim, even when the CPA hasn’t done anything wrong. “We see lot of claims generated by clients who are just plain wrong,” said Michelle Duffett, co-owner of Insight Insurance Services in Geneva, Ill. “As many as half of the claims we see every year are cases where the accountant hasn’t done anything wrong but is being sued by the client anyway.”

Warning signs include a client who has been fired by their previous accountant or who parted ways with their accountant because they weren’t happy with the accounting decisions being made, clients who want to push accounting rules, and clients withhold fees in demand for services, said Duffett. Other red flags are clients who are in financial difficulty and want the accountant to help them get out or clients who want the lowest price possible and aren’t concerned about the CPA’s expertise in their area.

“We’d rather see a CPA take on a client who’s already declared bankruptcy and wants the accountant to help them move forward than one who is about to declare bankruptcy and wants the CPAs to help bail them out,” Duffett said.

“The number one thing that gets CPAs in trouble or hurts them from getting out of trouble is a lack of documentation,” warned Duffett. “Engagement letters are critically important. The accountant also needs to have conversations with client documented in files. That goes a lot further than just client’s recollection against the accountants recollection.” Engagement letters should be updated annually or whenever additional services will be performed.

-- Melissa Klein

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