Be prepared to decline the client opportunity if you cannot negotiate the terms to your satisfaction .
BY SUZANNE M . HOLL , CPA
Indemnification Clauses in Client Agreements … the Saga Continues
There has been a significant uptick of clients attempting to embed indemnification and / or hold harmless clauses in various documents executed with CPA firms ( e . g ., nondisclosure / confidentiality agreements , business associate agreements , data protection agreements , etc .) to shift financial liability through contractual apportionment of risk . CAMICO has also noted an increasing trend of clients pushing back on firms ’ engagement letters and proposing one-sided indemnification provisions , shifting risk and exposure onto firms beyond what would be deemed reasonable for the scope and limits of the engagement .
At their core , indemnification and hold harmless provisions in most CPA / client agreements are designed to transfer liability , generally in the event of an alleged breach of contract or a party ’ s negligence , misrepresentation or misconduct . At first glance , these provisions may appear to be relatively benign , but hidden in what a client may define as “ standard ” terms can be language that shifts unreasonable risk to the firm .
CAMICO encourages CPAs to take great care in reviewing any contracts or agreements containing such language . Consider the worst possible scenario under the agreement and determine the level of risk your firm would be assuming . So , it is important that before you contractually bind your firm to an arrangement , take the
Be prepared to decline the client opportunity if you cannot negotiate the terms to your satisfaction .
time to understand all the implications of any legalese in the agreement to make an informed decision about terms and conditions that may pose a higher standard or greater liability to the firm than what would typically be anticipated . Make sure that you are comfortable with the agreement and the expectations that will fall on your firm . Be prepared to decline the client opportunity if you cannot negotiate the terms to your satisfaction .
Questions to consider when evaluating agreements with these provisions include :
• Why are you being asked to indemnify ?
• What risk / exposure is the subject of the indemnification request ?
• Is the indemnity request limited ?
• What insurance implications should be considered ?
• Would these clauses impair independence ?
• Would the use of these clauses be an act discreditable to the profession ? Determining the answers to the above questions is a good starting point to evaluate risk . It is important to note that indemnification laws vary by state , so this risk discussion is limited in nature and does not address statespecific issues or recommendations . CAMICO encourages you to consult with qualified legal counsel in your state if you have specific questions regarding these provisions .
Why are you being asked to indemnify ? Most people would support and agree www . calcpa . org JANUARY / FEBRUARY 2025 CALIFORNIA CPA 11