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privilege is not available upon the commence- To mitigate the risk of inadvertent disclosure,
ment of a criminal investigation or prosecution. access to the CPA’s engagement files should be
Accordingly, no party should place significant limited solely to those individuals who are members
reliance on this privilege. of the engagement team.

KOVEL AGREEMENTS: WHAT TO KNOW POTENTIAL PITFALLS
Similar to a CPA firm’s engagement letter with A client may be uncomfortable engaging counsel
its client, a Kovel agreement between counsel and to provide legal services and pressure counsel to
the CPA governs the services between the parties. include the client’s current CPA on the engage-
Counsel takes the lead in drafting the agreement. ment team. However, including the current CPA
Before signing the agreement, the CPA should might not be the best idea. Prior knowledge of an
review the document with their own counsel and issue is not protected by the Kovel agreement and
consider the following: may cause the CPA to inadvertently waive one or
■ The scope of services in a Kovel agreement more privileges. Generally speaking, communica-
generally states that counsel is engaging the tions between the CPA and the client are not
CPA to assist in providing legal services to the protected. Prior communications may come back
counsel’s client and will often specify the client to haunt the client and the CPA if a tax authority
and the matter at issue. investigates the client and compels the CPA to
■ A Kovel agreement should state that it is coun- produce documents or provide testimony.
sel’s responsibility to direct the CPA’s services, CPAs should exercise caution to protect the
and the CPA takes instruction from counsel for privileges noted above. A CPA’s failure to abide by
all aspects of the engagement. the privilege requirements, such as the intentional
■ A Kovel agreement typically states that the or inadvertent communication or sharing of docu-
workpapers created by the CPA firm belong ments with any third party, can result in a waiver of
to the attorney in order to maintain privilege. privilege for all communications and documents, a
However, the CPA firm should be able to retain situation that may damage the client’s case.
its own copies. Absent counsel’s specific approval, none of the
■ As the CPA is working solely at the direction and communications or documents prepared pursuant
supervision of counsel, counsel should be primar- to the Kovel agreement should be repurposed for
ily responsible for liability and/or indemnity any engagement, such as in the preparation of
claims made by the client or third parties if the tax returns. Otherwise, a tax authority may assert
matter is not resolved to the client’s satisfaction. that the communications and/or documents
■ A Kovel agreement should identify the party created by the CPA at counsel’s direction served
responsible for the payment of the CPA’s fees, a purpose other than furtherance of counsel’s
which, in most cases, is the client. legal services.
■ A Kovel agreement may be signed by the client, in
addition to counsel and the CPA, especially if the Karen Nakamura, CPA, is a risk control consulting
client is responsible for payment of the CPA’s fees. director at CNA. For more information about this
article, contact specialtyriskcontrol@cna.com. ■
IMPORTANT CONSIDERATIONS WHEN WORKING
WITH COUNSEL UNDER A KOVEL AGREEMENT Continental Casualty Company, one of the CNA insurance companies,
is the underwriter of the AICPA Professional Liability Insurance
CPAs engaged pursuant to a Kovel agreement
Program. Aon Insurance Services, the National Program Administra-
should receive instructions from counsel on how
tor for the AICPA Professional Liability Program, is available at
to conduct the engagement, including instructions 800-221-3023 or visit cpai.com.
related to the CPA firm’s use of subcontractors. The This article provides information, rather than advice or opinion.
instructions should include guidance on how to It is accurate to the best of the author’s knowledge as of the article date.
This article should not be viewed as a substitute for recommendations of
protect available privileges as well as caveats regard-
a retained professional. Such consultation is recommended in applying
ing the types of actions that may waive privileges. this material in any particular factual situations.
Counsel should instruct the CPA how to ad- Examples are for illustrative purposes only and not intended to
dress communications to counsel and/or the client establish any standards of care, serve as legal advice, or acknowledge
any given factual situation is covered under any CNA insurance policy.
and what type of banner to include on emails and
The relevant insurance policy provides actual terms, coverages, amounts,
documents prepared at counsel’s direction, such as conditions, and exclusions for an insured. All products and services may
“Confidential/Prepared at the direction of Counsel.” not be available in all states and may be subject to change without notice.
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