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■ The nature of the client’s question or request; A BETTER ENDING
■ The CPA’s response; A CPA was asked to calculate the tax implica-
■ Additional fees; and tions of a hypothetical sale of a family business.
■ A statement that the CPA’s terms and The client was billed one hour for a preliminary,
conditions included in the original engage- “back-of-the envelope” calculation, which was
ment letter between the parties apply to the sent via email to the client along with a note
additional services. explaining that this was a preliminary calculation
If the CPA’s response is based on limited in- only based on a hypothetical sale, that the client
formation or summarizes preliminary thoughts, should not take action based on this information,
in addition to the above, the alternative docu- and that the terms and conditions of the CPA’s
mentation should state the following: tax preparation engagement letter applied.
■ The thoughts and advice provided by the Despite the CPA’s warning, the client sold the
CPA are based on limited information and business without confirming the tax implications
are preliminary in nature; with the CPA. Unfortunately, the client did not
■ Changes in circumstances or additional tell the CPA a material fact, and the client paid
information may change the CPA’s prelimi- over $2 million more in tax than anticipated.
nary advice; and The client asserted that, had it known the
■ The client should not act or make decisions actual amount of tax due from the sale, it would
based upon the CPA’s advice without a more not have sold the business, and, as a result, the
complete analysis. CPA should pay the additional tax, not the client.
Additionally, the client’s damages claim included
What not to do missed investment gains from the lost opportu-
Providing advice or responses to client questions nity to invest the money paid in taxes.
via text and other informal communication Fortunately, the CPA’s email proved instru-
methods is not recommended, as the brief, mental in defending the case. The firm argued
generally informal nature of these communica- that the client requested a preliminary calculation,
tion methods is not conducive to including and the CPA clearly stated the client should not
the critical documentation requirements rely on the calculation before proceeding with an
described above. actual sale. Further, the firm’s terms and condi-
tions limited its liability to three times fees and
COMMUNICATION AND TRAINING excluded indirect damages such as missed invest-
Use of alternative documentation is an area ment opportunities. Based on these defenses, the
ripe for inconsistent application across the firm. claim was dismissed.
To ensure all firm owners and employees help
manage the firm’s risk, communicate the firm’s Deborah K. Rood, CPA, is a risk control consulting
documentation protocol, including when and director at CNA. For more information about this
how to use it, and provide routine training on it. article, contact specialtyriskcontrol@cna.com. ■
Consider beginning all staff meetings with
a story about when scope expanded and how Continental Casualty Company, one of the CNA insurance companies, is
the underwriter of the AICPA Professional Liability Insurance Program.
it was documented. This understanding is
Aon Insurance Services, the National Program Administrator for the
every professional’s responsibility, not just the AICPA Professional Liability Program, is available at 800-221-3023 or
partners’. Give accolades to the individual who visit cpai.com.
This article provides information, rather than advice or opinion. It
identified the scope expansion, especially if it
is accurate to the best of the author’s knowledge as of the article date. This
is a junior professional. Alternatively, a weekly article should not be viewed as a substitute for recommendations of a
communication to the firm could highlight retained professional. Such consultation is recommended in applying this
material in any particular factual situations.
these success stories.
Examples are for illustrative purposes only and not intended to estab-
When conducting technical training, con- lish any standards of care, serve as legal advice, or acknowledge any given
sider adding a section on how to document ad- factual situation is covered under any CNA insurance policy. The relevant
insurance policy provides actual terms, coverages, amounts, conditions, and
ditional services. For example, an email may be
exclusions for an insured. All products and services may not be available in
sufficient to document an initial discussion with all states and may be subject to change without notice.
a client regarding a new tax law, but if the client
requests research as to how it will apply to their
specific facts, will the firm require a new engage-
ment letter? An engagement letter addendum?

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