Professional Liability Risk Resolutions for 2017
[ILLUSTRATION OMITTED] Welcome to the new year--a time to reflect on the past, a time to anticipate the year ahead, and a time for resolutions. As you contemplate what 2017 has in store for you and your CPA firm, we suggest adding these resolutions to the top of your list. FOCUS ON AUDIT QUALITY Audit qualify is important for many reasons: the firm's reputation, user reliance on audit opinions, the profession's mission to protect the public, peer reviews, and regulatory scrutiny, among others. Consequently, audit services present a potential area of professional liability risk for a CPA firm. The combination of the level of assurance provided and the expectation gap between auditors and users regarding responsibilities for fraud and error detection can lead to expensive claims. Regulators have scrutinized the quality of broker-dealer audits (see the PCAOB's 2016 Annual Report on the Interim Inspection Program Related to Audits of Brokers and Dealers, available at tinyurl.com/hbvvrtp), employee benefit plan audits (U.S. Department of Labor, Assessing the of Employee Benefit Plan Audits, May 2015, available at tinyurl.com/hpya68o), and compliance audits of entities that receive and expend federal funds above a certain threshold, commonly referred to as single audits (Office of Management and Budget (OMB), Report on National Single Audit Sampling Project, June 2007, available at tinyurl.com/z51hhb2). The OMB is expected to conduct an additional quality study of single audits beginning in 2018 or at some other interval as determined by OMB. Even if your firm does not perform the types of audits highlighted above, challenges in those areas have contributed to additional focus on audit quality in general. For example, all CPA firms performing attest services will experience the changes to the AICPA Standards for Performing and Reporting on Peer Reviews (see Step Up in Standards for Peer Reviewers, JofA, Dec. 2015, tinyurl.com/hc5wsaj). The enhanced peer review process is expected to result in a more rigorous examination of audit quality. Re-familiarize yourself with the importance of audit quality by reading the article There's No Substitute for Quality (The Practicing CPA, June 30, 2015, tinyurl.com/jymmonc). Review how your firm can support audit quality by reading the AICPA's Enhancing Audit Quality: A 6-Point Plan to Improve Audits, available at tinyurl.com/qfdansb. CONSIDER THE IMPACT OF BABY BOOMERS Tax and fiduciary services Baby Boomers are expected to transfer an estimated $30 trillion to their families and other beneficiaries over the next few decades. As a result, CPAs may be asked to help structure tax-efficient methods for transferring this wealth. Longtime clients may also ask their trusted CPA to serve as executor or trustee upon their death. With so much money at stake, CPAs should be mindful of managing their firm's professional liability risk exposure. Defending and resolving claims related to estate planning, preparation of estate tax returns, and fiduciary services can be extremely expensive. The personal nature and feelings of aggrieved beneficiaries add to claim complexity. CPA firms should assess whether they have the knowledge and experience to deliver the service before accepting an engagement in this area. (Learn more about risks related to fiduciary services in Professional Liability Spotlight: The Unexpected Risks of Trustee Services, JofA, July 2016, tinyurl.com/zewpa7h, and why accepting an engagement in an unfamiliar area may not be the best decision in Professional Liability Spotlight: The Dangers of Dabbling, JofA, Nov. 2015, tinyurl.com/gn5mqr4.) CPA firm mergers and acquisitions CPA Boomers who are solo practitioners or owners of small CPA firms may wish to trade their green visor for sunglasses and seek to sell or merge their practice into another firm. To manage professional liability risk for both firms, several items should be considered. …