Page 321 - JoFA_2022

PROFESSIONAL LIABILITY SPOTLIGHT

Malpractice claims in 2021

and future predictions

By Sarah Beckett Ference, CPA

he tumultuous and unpredictable environ- financial assets, estate and gift tax returns, and
T ment of recent years has resulted in state and local nexus issues. Areas of practice and
increased stress for CPA firms and their clients. allegations that also typically result in high-
While uncertainty has been the norm, one con- severity claims include audit services, fiduciary
stant remains: When people lose money, they services, and claims asserting the CPA firm failed
often look for someone to blame, and CPAs can to detect a theft or fraud, irrespective of the
get caught in the cross hairs. service rendered.
This article examines the types of claims as-
serted against CPA firms in the AICPA Profes- TAX SERVICES
sional Liability Insurance Program in 2021 and Current claim trends
predicts what future claims may arise. The leading cause of loss for tax claims asserted in
2021 was a filing error (see the chart “Tax Services
CLAIMS BY AREA OF PRACTICE Claims Asserted in 2021 by Cause of Loss”).
The chart “2021 Claims by Area of Practice” In prior years, the leading cause of loss was the
reflects the volume of professional liability provision of incorrect advice or failure to advise.
claims asserted against CPA firms in the AICPA However, due to the multiple changes in 2019 and
Professional Liability Insurance Program in 2021, 2020 return filing deadlines, the increase in this
the majority of which stem from tax services. claim assertion is not surprising.
While tax claims are more frequent, they are Consider this claim asserted in 2021:
typically not severe or costly in terms of defense
costs and indemnity payments. Higher-severity A CPA firm was engaged to prepare a client’s
tax claims include those involving aggressive tax individual income tax return and returns for
strategies such as syndicated conservation ease- its businesses. The partner indicated that all
ments, U.S. filing obligations related to foreign returns would be extended but got busy and

2021 claims by area of practice

9%  Tax services, 73%
 Accounting and bookkeeping services, 9%

9%  Consulting services, 9%
 Audit and attest services, 5%
73% 5%
 Fiduciary services, 4%
4%

Source: CNA Accountants Professional Liability Claim Database, underwritten by Continental Casualty Company.
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4 | Journal of Accountancy August 2022