Preventing a Lawsuit as an Accountant

Every business comes with a certain amount of risk that is specific to that industry. For example, a business in the construction industry could be at risk of injuries to employees or the public. Or,  a health clinic is at risk of making a mistake that causes a patient to get worse. As the owner of an accounting business, you are also at risk, even if you never leave your home office.

Preventing a Lawsuit as an Accountant
Preventing a Lawsuit as an Accountant

Preventing a Lawsuit as an Accountant

One of the big risks is being the target of a lawsuit. A client may decide to sue you if they think that because of your service they have suffered financial losses. It doesn’t need to be true, and you might eventually win, but that doesn’t mean you won’t suffer from the consequences.

You will have to pay for your defense, plus your reputation could be severely damaged. Preventing an accounting malpractice lawsuit should be one of your priorities as you go about your work. Here are some steps you can take to help do that.

Research Potential Clients

It’s always important to know who you are getting into business with. You can easily find out if your client has a criminal history or has litigation against them. You should also see if they are known for being litigious themselves.

You don’t want to work for a business that will sue you at the drop of a hat for any reason they can think of. If you see a pattern of questionable actions or high-risk business ventures, it is probably a good idea to walk away.

Get to Know the Industry You Are Working In

You should not only know as much as possible about your clients but also about the industry in which they operate. There may be specific laws that apply to those businesses or tax breaks they can get. If you aren’t familiar with this information, then it is more likely that you will make an error.

If something happens and you are sued, then you will get questions about your knowledge of the industry and why you didn’t know something you apparently should have. Protect yourself by having the information, and it will also protect you if you are ever questioned.

Make Sure You Get Paid Regularly

It might seem strange to suggest that getting paid regularly can prevent lawsuits, but it is absolutely true. If you do not invoice regularly, or if the client doesn’t pay you regularly, it creates a dispute.

A disproportionate amount of accounting lawsuits are made in response to an accounting firm asking for payment for outstanding fees. To avoid disputes, make sure that you are invoicing regularly.

If you have concerns about the client being able to pay you, then consider walking away rather than leave yourself open to dispute.

Get Insured

Insurance may not prevent lawsuits in all cases, but it can definitely mitigate the negative financial effects. The fact is that you have access to and control over sensitive financial information as an accountant. If you make a mistake, it could cost a client a lot of money in many different ways.

With insurance, you can avoid a lawsuit by making a claim and paying the client back. However, even if you are eventually sued, you can still use your insurance to help with legal costs and any judgments made against you.

How much you pay for your accountant insurance expenses will be more than covered by any potential lawsuit costs, and with the peace of mind, you get from having it.

Stay Away From Clients With Financial Issues

It’s unfortunate, but if a company needs help because of ongoing financial issues, then it is usually a good idea to stay away. The reason is that companies that are feeling a pinch are more likely to commit crimes like fraud to help themselves stay afloat.

If you are the accountant when these crimes occur, you could find yourself in trouble. Many corporate executives are averse to failure and embarrassment and will commit fraud to avoid them.

Practice Good Professional Ethics

Of course, while it’s true that you may not be able to avoid a lawsuit if something is intent on filing one, the best thing you can do is act ethically at all times. That will give less ammunition to anyone that would attempt to find fault in your actions.

Make sure that you understand how conflicts of interest work and how to avoid them. If you are in doubt, consult a lawyer or take yourself away from that situation or transaction.

Use An Engagement Letter

Anytime you enter into a business arrangement, both parties need to understand the nature of that relationship. For every client you work with, have an attorney approve an engagement letter for each side to sign.

This letter will outline what you will and won’t do during your relationship. Make sure to update this letter every time something changes with the client. This can include providing new services or discontinuing them.

Your engagement letter should have a certain set of standard components. It should outline the scope of your engagement with the client, as well as the services you will offer.

It will make clear what your obligations are and what they are not. You should also include a clause regarding dispute resolution. That way, instead of a courtroom, you have a framework for figuring things out on your own.

Provide Good Service

At the very least, provide good service to your clients. Make sure that everything you do is accurate and that you have a good foundation for any recommendations you make to them.

The better you are at your job, the less likely they will be to sue you. On top of that, always answer questions and concerns from clients.

You never want to be seen to be avoiding them, as it could raise suspicions. Answer questions and be forthcoming. The more trustworthy you are, the more your clients will trust that you are always acting ethically and in good faith.

There are many possible reasons that a CPA might get sued. It’s up to you to do everything in your power to avoid this from happening. By taking these steps, you can prevent lawsuits and build a solid reputation for your business.

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