Revised through 9/25/98 and presently in the process of
complete revision.
INTRODUCTION
This
online Guidebook is designed to provide accounting firms with
instruction on how to protect their practices against liability
claims. The Guidebook is divided into three parts: the first
addresses insurance which has been the traditional form of risk
management utilized by accounting firms over the past thirty
years; the second addresses loss prevention techniques which
have been developed in recent years to supplement the protection
offered by liability insurance; and the third provides guidance
on actions to be taken after a mistake has been made or a claim
has been threatened in order to minimize possible future exposure.
The
text that follows has been drafted by the members of the Editorial
Board for the Guidebook.
TABLE
OF CONTENTS
Editorial
Board
View
Entire Guidebook
Part
I - Insurance
1. The
Market
A. Available
policies
B. Critique of available programs
2. Buying
Insurance
A. What
limits
B. What deductible to select
C. Factors to consider when purchasing insurance
D. How to complete the application
E. What is negotiable
3. Underwriting
Considerations
A. Scope
of practice
B. Prior claims
C. Quality control systems
D. Suits for fees
E. Other
4. Tail
and Prior Acts Coverage
5. Duty
to Notify
6. Duty
to Cooperate
7. Coverage
Disputes
A. Reservation
of rights letters
B. Disclaimer letters
C. Reservation of rights agreements
D. Selection of defense counsel
E. Declaratory judgment actions
8. Regulation
A. Admitted,
non-admitted, surplus lines carriers
B. Regulation of policy terms
C. Regulation of capital and surplus
D. Regulation 107
Part
II - Risk Management
1. Client
Selection and Pruning
A. Importance
of screening
B. Problem clients and engagements
C. Client-in-take procedures
D. Conflicts of interests
E. Independence issues
F. Client refusals and non-engagement letters
G. Client pruning and disengagement & letters
2. Engagement
Letters
A. Importance
B. Standard engagement letter formats
C. Special clauses in engagement letters
D. Engagement letters procedures
3. Protecting
the Privity Defense
A. Background
B. Standards of liability to non-clients for negligence
C. Importance of the privity defense
D. Attempts to compromise the defense
E. Responding to requests to acknowledge reliance
F. Developing the no-reliance defense
G. Meetings with creditors
H. Avoiding third-party beneficiary status
4. Document
Retention Policies
A. General
B. Suggested policy
C. Special retention issues
5. Access
to Working Papers
A. Introduction
B. Client requests
C. Requests by successor auditors
D. Requests by others
E. Subpoenas
6. Practice
Acquisitions
A. Introduction
B. Due diligence
C. Acquisition agreements
D. Post acquisition activities
7. Partners
Leaving the Firm
A. Client
papers
B. Cooperation
C. Indemnifications
D. Proprietary documents
E. Payment for rights to service clients
F. Arbitration
8. LLCs/LLPs
& PCs
A. Dangers
to be avoided
B. Comparing PCs, LLCs and LLPs
C. Organizing a limited liability entity
D. Protection against commercial liabilities
E. Protecting high exposure partners
F. Multi-State practices
9. Personal
Asset Protection
A. Joint
tenancies with rights of survivorship
B. Homestead exemptions
C. Transfers of Assets
D. Pension plans, 401(k) Plans & IRAs
10. Conflicts
of Interests
A. Introduction
B. AICPA Rule 102
C. Disclosure and consent
D. Legal Significance
11.
Third-Party
Fees and Commissions
A. Ethical
restrictions
B. Impact on insurance coverage
C. Impact on litigations
D. Firm policies
12. Suits
for Fees
A. The
Danger
B. Suit Avoidance
C. Making The Decision to Sue
13. Addressing
Difficult Situations
A. Caught
in between feuding clients
B. Discovering client errors and irregularities
C. Discovering illegal acts by clients
D. Discovering errors in prior engagements
E. Evaluations in business buyouts
F. Disagreements with clients re audit and accounting
issues
G. Requests for consent to reproduce reports
H. Disagreements among members of engagement team
Part
III - Damage Control
1. When
& How to Seek Outside Advice
2. Importance
of Damage Control
3. Damage
Control Team
A. Composition
B. Functions
4. Responding
to Perceived or Threatened Claims
5. Workpapers
A. Locating
and Securing the Workpapers
B. Pruning and Rejoining
6. Dealing
with Present and Former Partners & Employees
A. Individual
or Joint Defenses
B. Repairing Severed Relations
7. Dealing
with the Press
8. Use
of Bad Faith Claims to Secure Insurer Cooperation
9. Selection
of Defense Counsel
10. Impact
of Reservation of Rights Letters
11. Responding
to Insurer Requests for Information
