California CPA November 2024 | Page 19

if CPAs are not proactive and sensitive to their existence , potential conflicts of interest are not perceived before the incidents that trigger these claims . If potential conflicts are identified , you must assess whether you can objectively represent the parties involved and if you determine you can , assess whether there are reasonable safeguards to eliminate or reduce the threat to an acceptable level . If unsure , contact CAMICO . We will work with you to address your potential conflict of interest dilemmas .

2 . Is the engagement a good fit for the firm ’ s expertise ? In CAMICO ’ s experience , firms who dabble have a much higher risk of having a claim . Learning the art of saying “ no ” to clients is an important , but often overlooked , risk mitigation tool . and their digital asset transactions are opportunities for some firms , but unfortunately these opportunities also pose considerable liability exposure for firms who lack the requisite skills and dabble — tread carefully , arm yourself with knowledge , know your limitations and be willing and able to say “ no .”

3 . Are you taking the right steps to manage ( and document ) client expectations ? Effective communication is a key factor in any CPA-client relationship , and when you work to stay informed and in control of managing client expectations , you help to safeguard your firm . To that end , good documentation is critical to successfully managing client expectations . Jurors ( members of the public ) generally consider CPAs to be

Members-Only Site ’ s Engagement Letter Resource Center .

Always document significant meetings , communications and follow-up . Follow up with written communications in circumstances including , but not limited to :

• Change in engagement scope ( may require a new engagement letter )

• Negative information ( e . g ., tax return is already late , client ’ s failure to timely provide information , client is facing an audit )

• Judgment calls ( e . g ., aggressive tax positions taken by your predecessor )

• Client agreement to take significant action

• Conversations regarding transactions , extensions , or estimated tax payments

If clients seek your help with transactions and / or activities outside your comfort zone or skillset [… did someone mention Employee Retention Credit (“ ERC ”) or virtual investment opportunities such as non-fungible tokens (“ NFTs ”) …?], you will be better served suggesting they seek the advice and counsel of professionals with expertise in those areas .

It is important to recognize , embrace and maintain your competencies . As such , it is critical that CPAs never feel compelled to dabble in practice areas outside of their expertise . Frankly , this rule is fundamental to our profession as the preeminent standard of the Code of Professional Conduct ’ s General Standards requires CPAs to only undertake professional services they can reasonably expect to complete with professional competence .

Advising clients regarding ERC experts in documentation , and falling short of that expectation may be viewed as negligent and perceived as falling below the standard of care .

Here are some helpful documentation tips to get you through the remainder of tax season :

Engagement letters . While engagement letters won ’ t immunize you from lawsuits , they can be your first line of defense if a client makes a claim against you . Although you likely already have executed engagement letters in place with your tax clients , for those engagements that have had some engagement creep , memorialize the additional services by updating your engagement letter or obtaining a signed addendum clarifying the revised scope and limits .

Numerous CAMICO engagement letter templates are available on the

‘ Advise ’ clients of opportunities and ‘ warn ’ clients about risks . Consider obtaining a tax representation letter or stand-alone certification letter to mitigate high-risk scenarios such as the following :

• If your firm is preparing amended income tax returns to reflect the ERC adjustments as required by the taxing authorities , and the firm is not responsible for assessing or opining on the client ’ s eligibility for the ERC , CAMICO strongly recommends that in addition to having a signed engagement letter for such services , firms also insist the client sign a tax representation letter ( this letter can be found on the Members-Only Site in the Tax Resource Center ). This added defensive documentation will help protect the firm if clients later allege that the firm should have opined regarding eligibility for the www . calcpa . org NOVEMBER 2024 CALIFORNIA CPA 17