Clients sometimes ask their CPA to assist them with human resources-related matters, such as assisting with the recruitment of a new CFO, or with "redesigning their accounting department." Here’s how to avoid some of the pitfalls in such scenarios.
CPAs providing these types of consulting services must remain sensitive to not stepping into the shoes of management. Care must be given to ensuring that there is no "client expectation gap" with respect to the scope and limits of the human resources consulting services rendered. It is also important to clearly establish the client's responsibilities.
Consider the following scenario:The CPA firm is engaged by a client company to review financial statements, prepare tax returns, and assist the company in finding a new controller. The firm places classified ads, screens resumes, and interviews candidates. Qualified candidates are then sent to the client for further interviews. The client then hires one of the candidates without informing the firm of the hiring.
A month or so later, the client calls to tell the firm that the firm had over-billed for its services in the amount of $20,000. The firm checks its records and finds that its bill is accurate. The client somehow has an inaccurate bill, and the firm warns the client that some sort of error has occurred.
A few weeks after that, the new controller disappears with about $100,000. The client asks the firm what kind of background check was performed on the new controller. The firm explains that no background checks had been requested, offered or performed, but the client continues to assert that the CPA should have performed a background check.
The client hired the controller without giving the firm a chance to do a background check, and in any event, it didn’t make sense to do a background check on every candidate sent to the client for an interview. Further, the engagement letter specified that background checks were not to be a part of the engagement, and when the firm pointed that out to the client, the client decided to pursue a settlement with a bank that didn’t catch the controller’s fraudulent activity.
The engagement letter is an excellent communications tool for defining client and CPA firm responsibilities, and it can be a powerful first line of defense in a dispute. Use an engagement letter for every engagement. Juries expect CPAs to document all significant communications, decisions and observations, and the understanding between the CPA and the client should always be documented in an engagement letter.
Letters should be as detailed as possible in defining the nature and extent of the services to be performed as well as any services scoped out of the engagement. Address client expectations with an eye toward avoiding potential problems. Have a qualified risk advisor review your engagement letter.
Ascertain whether your firm can do the job; determine what services are needed and whether or not they might be better performed by another professional, such as an employment practices attorney.
Remember: Do not step into the shoes of management. It is extremely important that you don’t inadvertently impair your independence should you wish to perform attest services. Perception is everything, and the contention that you are able to remain impartial and objective while serving as a client’s CPA and trusted advisor is frequently not believed by a jury. Should something go wrong and you end up in court, it is highly likely that a jury will perceive you as not having been impartial and objective.