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| May 1, 2005 | The
Newspaper of the NYSSCPA |
Vol.
8, No.7 |
Beware of the Client Agreement
By Jeff Hohman
What should a CPA do if a client asks him to sign a “Confidentiality Agreement” or a client-prepared “Performance Contract” in lieu of the CPA’s standard engagement letter for that service?
A trend that Camico has observed over the last year or so is a real effort by some larger clients to pressure their CPAs into signing contractual agreements that may be more appropriate in vendor situations but don’t appear to have applicability or value, or both, in the traditional CPA-client relationship.
For example, we have found that some state and local governments have developed long, detailed vendor performance contracts, which they have attempted to “push” onto the CPAs they engage for various scopes of service. Certain clauses in these client-prepared contractual agreements may significantly increase the risks to the CPA. These “high-risk” clauses may include:
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limitations of record retention that can be contrary to state law or the firm’s policy;
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indemnification and limited liability that shifts all of the responsibility onto the CPA and away from the client; or
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hold-harmless statements, which can be detrimental to the CPA while fully benefiting the client.
The ways to mitigate this increased risk are to:
1.) read the entire agreement;
2.) seek advice with respect to agreement items that cause concern or confusion; and
3.) push back with the client and explain how the CPA-client relationship is different from a typical vendor relationship and how some of the agreement clauses are not applicable to the CPA-client relationship.
Camico believes that many of these contracts or agreements are being sent out generally to all vendors on advice of counsel, even though many of the agreement items may not apply to a particular vendor, like a CPA.
In an interesting example, a CPA was performing audit services for the client and was asked to sign an agreement indicating that he was responsible for the detection of fraud. Clearly, that contractual clause goes well beyond the professional standards with respect to an audit.
Camico’s advice to CPAs would be to use their engagement letters instead of an agreement or contract with the client and to point out to the client the confidentiality language in the letter, especially if it is a concern of the client. The ideal scenario, of course, is to have the client use an engagement letter exclusively; but it might actually come down to a combination of the two, whereby the engagement letter complements the agreement. It is ultimately the CPA’s choice, and Camico can review agreements and provide assistance to policyholders if requested.
Jeff Hohman, CPA, is a loss prevention specialist with Camico and responds to inquiries from CPAs on various topics. His work experience encompasses 18 years of accounting experience, including public accounting and tax research, compliance and consulting.
