Accountants face new liability risks in 2022


The successful expansion of many accounting practices during the pandemic put them in place for liability risks over the coming year.

“One of the things that stands out is how resilient the accounting profession has been and how amazing it is to work with them, and the impact they have had in helping their clients,” said Ken Mackunis, Executive Vice President at Aon Insurance Services. “When they expanded their services in response to the needs of their clients due to the CARES Act, they expanded their role to CPAs. We see businesses prosper and grow. At the same time, we see that they have done a good job of selecting and retaining customers. This is where the risk begins, with the growth and expansion of the range of services. It’s a positive backdrop to how we view risk until 2022. ”

“It’s always a good business to reassess the situation of current customers,” he said. “If a company wants to assess customer continuity – and it should – we’ll see a lot of that next year. “

The biggest risk, according to Mackunis, is in cyberspace. “It keeps growing and growing, so much so that the insurance market is getting nervous about how it is running it. In fact, they’re nervous about how they handle it on their own. The frequency of events has increased overall, and this will resonate with the accounting profession because the CPA works a lot with personal and confidential information, ”he said.

“This is a very real problem,” agreed Stephen Vono, senior vice president of McGowanPro. “If you don’t have cyber insurance, you should get it now because it might be more difficult in the next few months. “

“Cyber ​​complaints continue to increase. Crooks are getting better and better at doing harm, ”he said. “Big business is putting resources into it, and assuming big business improves to protect themselves, what will happen is small businesses will become easier targets for the criminal. I have spoken to single practitioners who think they are immune because they are small. The answer is they will come after you because you are a handy fruit. Everyone needs to strengthen their cyber liability protections.

Manage the risks

Controlling risk is more important than finding the right kind of insurance, according to Mackunis. “Even with insurance, the insurance company will look to put in place more controls to manage exposure,” he said. “For example, what is the company doing to prepare for ransomware events? Does it have a sufficient backup plan in place? “

“As the new year approaches, there are some concerns about the audit,” Mackunis said. There is a certain sluggishness in various sectors of the economy, which can lead to asset depreciation and going concern. Are clients going to declare bankruptcy? Then there are increasing exposures due to supply chain disruptions. This will impact different businesses in different industries. The potential for fraud is there; CPAs must be able to support their clients while avoiding allegations of non-detection of fraud. ”

Tax practice is now a little different from previous years due to changing deadlines and confusion over IRS guidelines, according to Mackunis. “Taxation has been quite predictable in the past due to its seasonality,” he said. “Tax liability claims are generally less severe but more frequent. Due to COVID, we try to raise more awareness of returns when a person works in a different region than where they live, especially if more than one state is involved. “

And insurers are paying more attention to ESG considerations, noted Mackunis: “Do our financial statements adequately reflect the evolving risks associated with climate change, and what does this mean for auditors? financial state ? Do they reflect enough risk on a business for the good of investors? What risks will emerge from ESG issues?

Vono anticipates potential risks ahead in a number of areas. “Practitioners need to be aware of the possibility of business failures,” he said. “There were quite a few in 2020 and 2021, and they will likely continue into 2022. Businesses suffer from a lack of skilled employees and inventory and supply chain issues.”

“In addition, the end of government programs will cause difficulties for some businesses,” he suggested. “At the same time, the benefits for many employees have ended, a development that could result in many employees returning to the workforce. CPA firms need to be nimble and proactively examine risks under the COVID microscope. They must assess the evolution of business protocols and procedures, as well as how these affect businesses. The burnout linked to COVID is real and has an impact on the way we do business. Expect slower bill payments from customers and poor record transfers from customers struggling with fewer employees. Early retirement rates are increasing, which will require planning for both businesses and individuals. “

Paycheck Protection Program loans will mature in 2022 and interest may continue to accrue. If accountants helped with the loan process, that can be a problem, Vono said: “There might be sticker shock for clients along the way, and accountants have to think about managing in this area. “

Many are predicting an economic slowdown in 2022 due to rising energy prices and supply chain issues. When that happens, there is usually more litigation, according to John Raspante, director of risk management for McGowanPro. “People are more inclined to want to be healed, whereas when the economy is strong they tend to just let it go. There is always an increase in liability claims during troubled times. “

“The slow economy and the pandemic have allowed criminals to take advantage of those who work remotely without a firewall from the main office,” he added. “But the biggest problem may be the lack of goods due to supply chain issues. With the onset of winter, weather-related supplies may be scarce. “

Net operating losses, in particular, need to be treated with care by practitioners, Raspante suggested. “Business losses can now be carried back, which was not possible under previous law. But it does require study and planning for the individual situation – it is a major decision for clients.

Be proactive

There is potential for additional liability exposure in light of the economic challenges that many clients face, ”said Anthony Cooper, tax advisor at Camico. “Economic conditions have a significant impact on the frequency and severity of litigation, potential professional liability claims and reported claims. “

Cooper recommended these risk management steps:

  • Identify customers who may be at higher risk. Play the “What if” game: What if the economy results in the loss of a customer’s customers or a line of credit?
  • Increase the level of professional skepticism. The public expects accountants to maintain professional skepticism in all interactions and services with clients. The tax preparer should not ignore red flags and inconsistencies due to a client’s belief that management is honest.
  • Prioritize defensive documentation, including the engagement letter. Important meetings with clients should be followed by a written commemoration of who was present, what was discussed, what action to take agreed upon, and who is responsible for each. A written commemoration is probably the most important tool to ensure that the preparer and the clients proceed with the same expectations and assumptions.

After documenting important meetings and communications, follow up with written communication in circumstances such as:

  • A change in the scope of an engagement (which may require a new engagement letter);
  • Negative information (for example, a tax return is already overdue, the customer failed to provide timely information, the customer faces an audit, etc.);
  • Judgment calls (for example, the former accountant took an aggressive stance that the client is aware of and has consented to);
  • The client must take physical measures during the discussion; Where,
  • Conversations regarding transactions or amounts used for extension payments.

“It’s also important to get written confirmation of the amounts used for the calculations,” Cooper said. “For example, a confirmation can be sent to the customer with the tax extension payment form, giving the customer the option to review the information and change any information that appears to be incorrect, by April 15. The confirmation serves then registration of the client’s declarations in the event that the client incurs a penalty for insufficient payment. “
Finally, the documentation should be factual and professional, Cooper recalled. “It should also be without personal comments, which may be inappropriate and undermine the integrity of the documentation.”

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