Risk Management For Accountants

It is true that accountants are well ahead of most other professions when it comes to risk management and certainly, the "big four" have had in place risk management processes and dedicated resources far earlier than solicitors, IFA's and surveyors to name but a few. However, this is no time to rest. Clients are running out of money, as the slow asphyxiation of the credit crunch finally chokes their life blood, and liquidators, litigation funds, irate investors and shareholders are starting to see litigation as a viable business plan. It seems a good time to re-visit the touchstones of risk management for accountants.

The risks facing accountants are varied: damage to reputation from bad clients or from losing data, claims from third parties as well as clients; failing to plan to detect fraud in the audit process; claims for missed time limits and challenges to (not so) "brilliant" tax schemes by HMRC. Modern day accountancy firms also offer investment management and financial services too, as the next "AIG" glut of claim cannot be far away. Add to this the complex issues involved when the various regulators come calling and the risk picture becomes complete.

Dealing with these topics fully is beyond the scope of this article but some of these measures if adopted will see off a number of these threats and otherwise bring down the risk to an acceptable level with which to do business.

Accountants are perhaps unique because of the way that their work can be expected to be of interest to parties not even being asked to pay their bills: the investor carrying out due diligence or the bank deciding whether to continue support. Clients can and do expect great service but there is so much that can go wrong with tax advice, or corporate finance activities or audit, that the terms on which clients are retained can define whether a claim will get off the ground or not.

Risk management for accountants should therefore start with the engagement letter. This is a must and should contain a number of key elements: the scope of work to be carried out; a reasonable and negotiated liability cap; terms of business and use of data; confidentiality; and how the work can be used or relied upon. These matters can be incredibly important. For example, in BP v Aon, the liability cap Aon had placed in its engagement with BP for the Texas part of the retainer was found to bite, but because some of the work had been carried out in London but the Aon office here had no...