Here at PL Matters we have written on numerous occasions about the importance of an engagement letter. The engagement letter is a critical tool for setting expectations and managing risks. As we have said before a well drafted engagement letter can deter malpractice claims and in meritless suits it can be “Exhibit A” to a dispositive motion. A case out of New York involving an accountant-client relationship demonstrates just that scenario. Unfortunately in this case, however, the court found that the engagement letter did not …
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Accountants: You’re Privileged Too
The accountant-client privilege doesn’t seem to get as much attention as the other more commonly used privilege defenses such as attorney-client or doctor-patient. However, a case out of the Illinois Supreme Court earlier this year is giving the other “a/c privilege” a lot of press. While not all states recognize this privilege, the ones that do generally find that the client is the holder of the privilege and requires the client’s consent to disclose any information exchanged between the accountant and client. Illinois, however, has …
Continue ReadingThe Tax Professional’s “Dirty Dozen” List
April 15 is looming. For tax professionals across the country, the emergence of spring also means it’s time to hunker down to prepare tax returns. In the midst of preparing returns and meeting deadlines, tax professionals must also consider the reality that tax advice and return preparation reportedly result in the greatest number of claims against accountants. Some good news is that there are common themes amongst the types of claims facing tax professionals which provide insight and valuable lessons. In particular, the IRS publishes …
Continue ReadingFlying Under the Radar: Taxing Frequent Flier Miles
Many professionals travel frequently. Hence, professionals may accumulate various rebates, discounts, frequent flier miles or “cash-back” as a result of travel or credit-card incentive programs. Over the years there has been some chatter amongst tax-preparers as to whether those travel-related or purchase perks are considering taxable income. Let’s take a closer look at this risk management issue facing the accounting profession.
We start with the general rule: all income is presumed to be taxable. But like most issues facing professionals, the devil is in the …
Continue ReadingHefty Audit Malpractice Case Dismissed due to Lack of Reliance
It is inevitable that blame will be cast on the auditor: when an investment tanks, when embezzlement is discovered, when stocks take a plunge. It is the independent auditor that concluded that the financial statements were presented fairly and therefore the auditor should have uncovered the ______________. Many plaintiffs follow this script. As a result, the defending auditor is left to argue that he is not responsible for the intentional acts of others or unforeseen changes in the underlying client’s business. This defense requires a …
Continue ReadingA First of its Kind: FDIC v. Independent Auditor
A recent decision in a closely watched accounting malpractice matter – the first of its kind initiated by the FDIC – may suggest cause for concern for accountants. As receiver for a failed bank, the FDIC may sue professionals who played a role in the failure of the institution. In the wake of recent bank failures, the FDIC has targeted officers and directors, attorneys, and brokers. Until recently, however, the FDIC had not pursued an audit firm. That all changed on November 1, 2012 when …
Continue ReadingResponding to Legal Audit Letters = Risk Management Headache
As many of you probably know, auditing standards require that an auditor confer with the attorneys for the audited entity about certain types of loss contingencies, such as pending litigation and unasserted claims. During this process, the audited entity/client asks that its attorneys respond to the “legal audit letter.” Some attorneys may view this procedure as cumbersome and perhaps even annoying, but it is a required element of the auditing process and must be taken seriously. This is especially so because the attorney’s response …
Continue ReadingGolfer Tees-Up Professional Malpractice Lawsuit
A professional golfer – with a famous ex-fiance – recently filed a professional malpractice claim against his former accountant for allegedly concealing unpaid taxes in excess of $500,000. Hank Kuehne is an amateur champion who last played in a major tournament at the 2012 Honda Classic, but is perhaps best known for his prior engagement to tennis great Venus Williams. Reportedly, Kuehne had no idea of his mounting tax liability until he fired his advisor and retained a new accountant to manage …
Continue ReadingWho Really Owns a CPA’s Working Papers?
Accountants are well aware that clients, former clients, and others periodically request (or sometimes demand) copies of the accountant’s work-papers. The question invariably is: who owns those materials? Moreover, what is the accountant obligated to turn over and what categories of materials may be withheld? An accountant, and those that represent them, must be aware of the critical legal and regulatory issues facing the accounting profession when handling such a request.
“As many Certified Public Accountants and Public Accountants have come to know in their …
Continue ReadingAn Unsavory Brew: Yuengling Sued for $6.6 Million in Back Taxes
With tax season upon us, tax professionals may cringe at another example of the potential for malpractice arising from questionable tax advice. However, America’s Oldest Brewery is in the midst of a very public dispute with the City of Brotherly Love regarding allegedly unpaid taxes. The City of Philadelphia recently sued Yuengling in an attempt to recover $6.6 million in back taxes, interest, and penalties allegedly owed to the City. Although Yuengling is located outside of Philadelphia, the City contends that the brewery failed …
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