While in college, I decided that I was tired of the public transportation system in Denver, which as you can imagine, among other things, did not go over very well while trying to court various sorority members to dinner. So, armed with a modest amount of cash, I went used car shopping at both dealerships and with a number of private owners.
I found one that fit my needs perfectly, an olive green Fiat, easy on gas with a surprising amount of legroom and trunk space. The one problem was that the current owner declined to let me take it to an independent mechanic for a top-down examination. His claim was that he didn't trust them, and that they often went looking for problems.
That philosophy sort of convinced me that the vehicle was probably a future model for those CarFax commercials -the business that provides vehicle history reports on used cars to ensure they were not immersed in a riverbed for nine months, or lost a game of chicken with a tractor-trailer.
Basically, I trusted my instincts.
Interestingly, I was reminded of this misadventure in auto shopping at last week's AICPA's Practitioners Symposium in Las Vegas. While the city was bustling with, among other things, a superfight, the Kentucky Derby, a $1 million a Texas Hold 'Em tournament and the massive National Hardware Show, I avoided these distractions long enough to attend a session on how CPAs can avoid liability claims.
The session moderator, a malpractice and liability attorney in the Seattle area, told attendees that in the wake of the Madoff and similar scandals, CPAs would increasingly find themselves in the crosshairs of liability claims. Seems investors have this aversion to getting fleeced out of their life savings and begin filing litigation against fund managers and all connected parties such as auditors.
She emphasized (and quite frequently in the span of one hour) that CPAs should trust those same instincts with regard to hiring and firing clients and revealed that not nearly enough of those in the profession have any type of formal document retention policy, nor are they diligent about even getting engagement letters signed.
I sort of found that statement surprising, since as a rule, CPAs tend to be meticulous, almost reticent about quite a number of things.
I mean if a client of mine kept stalling before signing an engagement letter, I think it would raise a concern or two, even for a fairly trusting sort like me. I would begin thinking about jettisoning them fairly quickly, because the last thing I would want to be asked to do as a CPA is to give a deposition and try to explain why I didn't catch something sooner.
Keeping those types of clients is akin to buying a used car without a mechanic providing "attest services" from a mechanic.
I'm sure that eventually someone did buy that Fiat. I'm also pretty sure they learned a painful and expensive lesson about due diligence.
