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PROFESSIONAL LIABILITY SPOTLIGHT

Rogue behavior: Risks your

CPA firm should avoid

By Deborah K. Rood, CPA

oing rogue sounds so cool, but it can have required governmental continuing profes-
Head count G serious consequences. Claim experience of sional education.
the AICPA Professional Liability Insurance When the acquiring firm questioned the gov-
Program has demonstrated that rogue behavior, ernmental audit partner about the deficiencies, he
82 especially at the partner level, can lead to profes- asserted that this was how he and his team had

Median number sional liability claims. always performed the audits and was unaware of
of professionals What is meant by rogue behavior? In a nutshell, his acquiring firm’s policies and quality control
(including owners) it is failing to do what an individual in the same or procedures. Consequently, the acquiring firm re-
in firms with $10 similar position is expected to do. Unintentional viewed additional audit engagements performed
million or more in rogue conduct arises more often than one might by the legacy firm, noted similar discrepancies,
annual revenue. think. Consider these scenarios. and had to spend a significant amount of unbill-
Flying solo increases the likelihood of able time remediating the deficiencies to ensure
Source: 2021
AICPA PCPS/CPA.com a crash: John, a tax partner at a midsize CPA previously issued audit reports were appropriate.
National Management firm, died unexpectedly. The firm reassigned his Pressure to win leads to a loss: A junior
of an Accounting clients to other partners at the firm, many to partner in a CPA firm’s advisory practice had
Practice Survey.
Denise. While reviewing tax returns prepared by an opportunity to perform a quality of earn-
John, Denise noticed a number of tax positions ings engagement on a target in the health care
that, on the surface, appeared to be incorrect. industry. Although the partner had some due
Further review of John’s workpapers and other diligence experience, she had no experience with
client files uncovered a pattern of unfiled tax re- health care. However, by accepting this engage-
turns, poor documentation, and multiple errors. ment she would meet her new business goal
Questions asked of staff who typically worked for the year, which would significantly impact
with John revealed that he chose to perform her compensation.
much of the work himself. Despite appearing Due to her limited experience, the partner
overwhelmed and distracted, John did not failed to identify issues with the target’s Medicare
request assistance and often refused any offer of billing procedures that the buyer discovered only
help. The firm had to inform several clients that following completion of the acquisition. The CPA
previously filed tax returns should be amended firm faced a professional liability claim after the
and lost several clients in the process. The firm’s client asserted that the issues should have been
professional liability insurer was placed on identified during the due diligence process and
notice for a number of potential claims. that the failure to do so resulted in their paying
Oversight failures show a firm’s blind too much for the target.
spots: A large CPA firm acquired a smaller The above scenarios illustrate how the
firm, including its successful governmental rogue actions of an individual, even if uninten-
audit practice. Upon joining the larger firm, tional, may place an entire firm at risk. Consider
the legacy firm’s governmental audit lead these risk management tips to help prevent
partner and his staff continued to operate from rogue behavior:
the legacy firm’s out-of-state office. Subse-
quently, the U.S. Government Accountability Develop and communicate policies and
Office reviewed one of the legacy firm’s audit procedures
engagements and noted multiple deficiencies, Establishing policies and procedures that embody
including limited evidence of the performance a firm’s risk tolerances is a good first step to
of required audit procedures that were suf- mitigating practice risk. For example, a firm may
ficient to support the audit opinion. Moreover, implement internal quality control procedures
legacy firm audit staff had not completed the that outline the circumstances when additional

4 | Journal of Accountancy June 2022