Accountants need to be proactive in protecting themselves and their firms from liability and malpractice claims, particularly in the wake of the legal fallout from the Bernie Madoff scheme and similar high-profile scandals, where auditors have become a litigation target for burned investors.
You are at the eye of the storm, Mary Eklund, a malpractice attorney at the firm Eklund Rockey Stratton in Bainbridge Island, Wash., told attendees at the AICPA Practitioners Symposium, here. I cant give you a rulebook or a checklist, but you need to know how to select and fire clients. Do you have a Bernie Madoff client? Clients can be deceptive and quiet. Know whats happening with their business and, before you begin, make sure they sign an engagement letter. If they dont or wont, then fire them. Use your instincts.
Eklund said that in a bad economy, there would likely be more liability claims lodged against CPAs. Investors who lost money in the Madoff and other scandals are now suing the investment managers as well as the auditors. There will always be the claim of you didnt find it soon enough or often enough.
She also pointed to Congresss recent move to pressure the Financial Accounting Standards Board to relax mark-to-market accounting rules as troubling.
Laws made under pressure usually are never good, she said. Do rule changes ever prevent the same problems in the future?
Since 2001, according to Eklund, there have been 3,250 changes to the Tax Code. She highlighted the dangers of Section 7216, which carries criminal penalties for misuse of client tax information. The Tax Code is your greatest annuity, but have a document retention policy in place, she advised.
If you find yourself saying, I dont like whats going on with this client, then get rid of him, she added. Otherwise his problems are going to become yours. You cant predict your clients.
The second day of the three-day practitioners confab opened with an hour-long update on the profession from AICPA president and chief executive Barry Melancon (pictured) and 2008-2009 institute chairman Ernest Almonte.
The pair said that during last weeks Spring Meeting of Council in Washington, nearly 500 members made Hill Visits with legislators and addressed a number of high-profile issues such as the organizations opposition to tax patent legislation, regulation of preparers and the draconian ramifications of Section 7216.
They also gave attendees an update on the Private Company Financial Reporting Committee and its efforts to become proactive on International Financial Reporting Standards, which Almonte said will be part of the CPA Exam in 2012.
They [IFRS principles] affect everyone, even the sole practitioner who has a client who invested in a company that reports in IFRS, said Almonte.
Melancon said that the institute is trying to get a CPA installed as a member of President Obamas recently assembled tax reform panel headed by former Federal Reserve Chairman Paul Volcker. There will be significant tax reform by this administration, he noted.
With regard to passing CPA mobility legislation, Melancon predicted that by year-end, 45 states would be on board.
Almonte, the auditor general of the state of Rhode Island, said that the institutes fledgling forensic credential, the CFF (Certified in Financial Forensics), currently has 3,105 holders, while the financial planning credential, PFS (Personal Financial Specialist), its oldest designation, has 4,163. The ABV (Accredited in Business Valuation) and CITP (Certified Information Technology Professional) credentials have 2,760 and 1,447 holders, respectively.
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