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Avoid Added Liability from Strategic
Alliance Agreements

By Suzanne M. Holl, CPA

There can be a number of advantages to establishing a strategic alliance with another CPA firm or a provider of financial services and/or products, such as enhanced expertise, image, reputation and revenues.

On the other hand, an alliance may entail a lot of hidden costs and/or additional liability risks that could significantly defeat the advantages of such arrangements.

Alliance agreements are contracts and typically contain legal language and caveats. Before contractually binding your firm to an alliance, it is important to understand all of the implications of the legalese. For example:

  • Some agreements attempt to shift liability from the service provider to the CPA firm, even for errors and omissions committed by the service provider.
  • Some agreements have clauses that require the firm to add the service provider as an additional insured under the CPA’s professional liability policy.

CAMICO encourages firms to consider the following risk management steps before entering into an alliance agreement:

  • Assess whether or not the culture and values of the service provider are a good match for your firm. An alliance may negatively impact the fundamental characteristics of the firm.
  • Consult with a qualified attorney to review the agreement, especially an attorney comfortable with assessing professional liability risks as well as contract terms.
  • Contact your professional liability carrier regarding the liability risks and coverage implications associated with the agreement. Your carrier’s advice would be supplemental to, but not replace, appropriate legal review.
  • Push back. You do not have to accept the terms as they are written in an agreement, preprinted or not.
  • Develop quality control measures and loss prevention strategies to manage the added liability exposures.
  • Does the potential strategic alliance partner have its own insurance?

Also, when considering issues regarding your firm’s independence and objectivity with respect to a potential alliance, be sensitive to the impact of the public’s perceptions and expectations of CPAs.

Suzanne M. Holl, CPA, is vice president of loss prevention services with CAMICO (www.camico.com). With more than 18 years of experience in accounting, she draws on her Big Four public accounting and private industry background to provide CAMICO’s member-owners with information on a wide variety of loss prevention and accounting issues.

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The economy has caused difficulties for CPA fee collections, but many of them are avoidable. This  Q&A provides some of CAMICO's tips on the topic.

Send an e-mail to riskadvisors@camico.com to request your own copy of  the free report.    

 


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