Five reasons why CPAs believe they will never be sued

CPAs generally take every precaution feasible to ensure error-free work, but that may not be enough to ensure a firm's security. In our litigious society, it's wise to be prepared for that unexpected bump in the road. To help put this in perspective, here are five common reasons why CPAs don't think they will be sued:

  1. I only do tax work and have a low-risk practice.
  2. Having a lower-than-average risk profile still leaves you vulnerable. For example, claims stemming from tax work, perceived as lower risk, occur more frequently than other types of claims, representing more than 60 percent of all claims (see chart, "Frequency vs. Severity").

    Tax claims can also be severe (i.e., in large dollar amounts) when triggered by issues such as estate taxes or foreign financial interests. CPAs may also be sued for damages they never anticipated, such as a client losing funds from embezzlement in their offices, or a client slipping and falling in the CPAs’ offices.

    “Frequency

  3. I've known my clients for years.
  4. Good working relationships with clients don't always stay good if the client becomes disappointed for any reason (and the reason may be unrelated to the CPA's work). Any significant loss can lead to a dispute. Claims files are brimming with cases of good CPA-client relationships souring due to a variety of problems.

  5. I don’t make mistakes.
  6. Even when the CPA is doing everything by the book, an expectation gap or undocumented warning may lead to an unfavorable jury verdict against the firm. Public (and juror) expectations of CPA responsibilities have risen significantly over the years, putting all CPAs at risk.

  7. I don't have insurance so I won’t be sued.
  8. A CPA who avoids insurance coverage does not always avoid a lawsuit. The party filing a lawsuit won't necessarily know whether the CPA is covered, and a CPA's lack of insurance won’t stop an attorney from going after the CPA's personal assets. The CPA in a claim situation sometimes needs to be defended in a court of law, and professional liability insurance pays for that defense as well as any legal counsel designated by the insurance company to defend the CPA.

  9. All of my assets are in my spouse's name.
  10. With technology so thoroughly integrated into society, it's easier than ever to track down someone’s assets. Putting assets in a spouse’s name will not make them immune from a lawsuit.

    A prudent approach to risk management begins by having a reliable insurance program that includes comprehensive loss prevention expertise, hotlines, resources and tools designed specifically for CPAs. These include, but are not limited to, engagement letter templates and reviews, client acceptance and continuance processes, documentation guidance and tips, and advice on Alternative Dispute Resolution (mediation for all disputes, and arbitration for fee disputes only). When the firm fully engages in utilizing those and other resources, it is well on its way to a more secure future.

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