Show Your Work
March 31, 2014
With the increase in accounting malpractice claims being filed today, it is of utmost importance that attorneys advise their clients on how to act in anticipation of litigation rather than being forced to react. It is becoming more a question of when than if auditors will be sued by one or more of their clients at some point during their career, and they need to be prepared at all times.
Something attorneys should be aware of is that regardless the level of service being provided to a client, public accountants are held to a higher standard of care simply because of the fact that they are professionals. Since the issuance of SAS 99 in 2002, it has been widely known that there is a heightened level of responsibility to detect fraud for accountants performing audits and other types of attest engagements. What must not be overlooked, however, is that even though the Statements on Auditing Standards and GAAS do not apply to non-audit engagements, the potential for professional liability is still there. The Code of Professional Conduct governs at all times, which states that CPAs should act with integrity, objectivity, due care, and a genuine interest in serving the public. Specifically, the essence of due care requires that the member perform all professional services to the best of their ability, not only for the interest of their client but also for their responsibility to the general public.
Attorneys with clients facing accounting malpractice claims should consider whether or not their client properly documented their work from the inception of the engagement all the way through to its completion. For starters, expectations and limitations should be explicitly outlined in an engagement letter at inception to avoid any uncertainty as to exactly what level of service is being provided and what is not and then stick to it. Effective communication throughout the engagement between the CPA and their client is key in attempting to avoid a malpractice claim. Every communication to the client, every procedure performed, and every response received should be documented.
Your client’s lack of documentation in the face of a malpractice claim does not give you much of a leg to stand on as a defense nor does it provide sufficient evidence for a jury to consider. Show your work is an important lesson everyone learned early on in elementary school, and it still applies today. While doing so can be tedious and time consuming, it is well worth the effort if and when questions arise. Be sure your clients are not caught empty handed in the cross-hairs of litigation.