To mitigate these risks , firms need to prioritize performing the ‘ right services ’ for the ‘ right clients .’ in situations where it appears that documents are deliberately withheld , or you are urged by a client to proceed without appropriate or sufficient documentation .
professionalissues
BY SUZANNE M . HOLL , CPA
Risk Management
Tips for the Tax Practitioner cAMICO has been developing risk management solutions for CPAs for more than 37 years , and we recognize and understand the challenges facing CPA firms navigating each tax season ’ s nuances . For example , the pandemic years ’ economic and tax relief programs had complex , wide-ranging impacts on CPAs , tax practitioners and their clients .
Although most agree that the current tax season has signs of returning to normalcy after the pandemic-induced chaos of recent years , CPA firms continue to face unique challenges and risks they should not ignore . For example , in addition to trying to keep up with the increasing complexities of evolving tax law and regulations ( e . g ., state passthrough entity taxes , K-2s / K-3s ), and ongoing challenges working with the IRS and other taxing authorities , many firms are experiencing significant capacity challenges as they struggle to find and retain qualified talent to support and meet their clients ’ service needs .
It can be difficult to stay current on risk management and loss prevention practices when dealing with these significant challenges . With more than 60 percent of CAMICO ’ s claims originating from tax-related matters , addressing and managing the risk stress points associated with problematic clients can significantly improve a firm ’ s risk profile .
Now , more than ever , CPA firms need to be proactive . To mitigate these risks , firms need to prioritize performing the “ right services ” for the “ right clients .”
Considering the following questions may help you identify client scenarios that may pose higher risk to your firm .
1 . Is the client still a good fit ? Proactively evaluate your client list . From
a timing perspective , there is no better time than now to review your client list . Do so before the final phase of tax season to decide whether clients remain a good fit for your firm . Disengaging from clients that do not meet that threshold — ideally after they have paid their bills — will better position you going forward .
CAMICO ’ s experience indicates the following are red flags of potential problem clients which , if not managed appropriately , will present elevated risks to firms :
• Difficult or uncooperative behavior ( e . g ., withholding critical information , argumentative and / or disrespectful to firm members )
• Changes in client ’ s business
• Deteriorating client relationship ( e . g ., not taking your advice , is not responsive , acting in a way that suggests compromised integrity )
• Potential conflicts of interest
• Constantly questioning your fees and / or requesting a discount before services commence
• Late , slow or partial payments Pay particular attention to difficult or manipulative clients who are slow in accommodating your requests , do not return your calls or are otherwise non-responsive . When a client seems unwilling to provide you with the information needed to complete an engagement , assess the underlying cause — is the problem merely sloppy recordkeeping , or is the client deliberately delaying or withholding information ? Be cautious
To mitigate these risks , firms need to prioritize performing the ‘ right services ’ for the ‘ right clients .’ in situations where it appears that documents are deliberately withheld , or you are urged by a client to proceed without appropriate or sufficient documentation .
Abrupt changes in a client ’ s behavior may be indicative of a failing business , financial problems or other personal problems . Trying to uncover the source of the problem could be beneficial , but whatever you do , don ’ t ignore the warning signs of a deteriorating relationship . And always be on the lookout for potential conflicts of interest . It is extremely important to examine potential or actual conflicts of interest from each party ’ s point of view , considering the client ’ s perspective as well as those of other owners , investors , partners , beneficiaries , spouses , etc .
Conflicts of interest have long been a major factor in professional liability claims against CPAs . Part of the problem is that
16 CALIFORNIA CPA NOVEMBER 2024 www . calcpa . org