With busy season upon us, it is vital for practitioners to take note that this is the time that accountants are most likely to make errors that can lead to lawsuits. 

Given the time constraints, deadlines, and pressure of dealing with unfamiliar situations and new laws and regulations, it’s no wonder that tax pros make mistakes. Liability professionals confirm this with the observation that tax services are the most frequent cause of liability lawsuits against accountants, although not the most severe. 

One factor involved in liability claims against accountants is “scope creep,” according to Stan Sterna, vice president and risk control leader at Aon, the program manager for the AICPA professional liability program. 

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For example, a tax engagement might result in failure to detect a defalcation: “The claimant alleges that the accountant agreed to look at internal controls, or that was the expectation,” he explained. “Whenever a client expects the accountant to provide advice that is beyond the scope of a tax preparation engagement, that results in scope creep.”

Scope creep can result from a casual conversation, or simply a misunderstanding at the time of the engagement. And the best way to guard against it is through the use of engagement letters — which has, unfortunately, always been historically low, according to Sterna. 

“It’s the first line of defense of a professional liability claim,” he said. “But tax practitioners find various reasons not to use them — too many clients, clients will take it as a CYA measure, it’s a low-risk engagement, or ‘We’re friends and they would never sue me.'” 

The engagement letter allows the accountant to define what is and what is not within the scope of the tax services the accountant is to provide, and aligns expectations. 

“It should be signed by the client and reissued every year so you can regularly review services and client needs,” Sterna said. “If additional services are required, draft a separate engagement letter or amend the original to define the scope of and fees for these ancillary services.”

“Advise your client that they need to sign the letter before you can commence your tax services,” he advised. “That affords both you and your client the opportunity to ask questions about the nature of the services and clarify any confusion before starting any work.”

And if the accountant feels reticent about requesting an engagement letter for their tax services, “Simply tell them that it’s required by your insurance company,” advise liability professionals. 

Hitting the deadlines

If your client misses a due date, any role you played as tax preparer will be front and center in a claim, Sterna noted. “The number of professional liability claims involving missed due dates has been rising,” he noted. “While civil enforcement funding has been scaled back, the IRS has increased staffing and enhanced its technology in recent years, ramping up enforcement and portending fewer penalty abatements.”

He advises practitioners to deploy a reliable form of docket system that tracks and alerts to due dates, respond-by dates, and project status. 

“While many practitioners already deploy some version of a docket system ranging from the humble spreadsheet to the full-bodied practice management software that lists forms and due dates, things still slip through the cracks, particularly during busy season,” he said. “This is compounded by the myriad of statutory dates beyond annual, periodic tax compliance such as estate tax returns, income tax returns for estates, amended returns, and legislatively created deadlines. Your docket system’s reliability is only as good as your interaction with it, so be diligent in inputting accurate and timely information.”

It’s also important to be careful who you share client data with, Sterna warned.

“Remember that Section 7216 requires client consent before disclosing to a third party any information furnished in connection with the preparation of a tax return,” he explained. “Section 7216’s consent requirements are more robust, and very specific language is required if tax information, particularly for individual tax clients, is disclosed to parties offshore. Violating Section 7216 can result in criminal penalties.”

Sterna noted that the AICPA provides guidance on Section 7216, including a sample consent form available for download. “Remember, tax practitioners who are AICPA members or are CPAs in states where the AICPA Code applies to them must also comply with the AICPA Statements on Standards for Tax Services Section 1.3, Data Protection, which states that a CPA should make reasonable efforts to safeguard taxpayer data, including data transmitted or stored electronically.”

He emphasized that data and personal information from your client is highly sensitive and losing that information could expose you not only to monetary damages but regulatory action and reputational harm. 

Cyber criminals, he noted, are opportunistic and exploit times when your guard is down, such as during busy season. To mitigate risk, he strongly advised using an updated antivirus software, and a multifactor authentication system to access your network. He also recommended encrypted email communications, and limiting access to client information to only those individuals with a clear need to access the data.

Lastly, as tax professionals work their way through busy season, they should be aware of any 2024 tax changes impacting 2025 filings, noted Sterna. 

“Future extension of the TCJA, while not necessarily a busy season risk issue, is something that might need to be considered later this year,” he said.

Recently, I found myself reflecting on the state of our profession while reading about today’s most pressing issues — private equity, capital needs, workforce shortages, the 150-hour requirement, growth strategies, and other industry concerns. 

It brought to mind an article I co-authored with Jay Nisberg over a decade ago titled “Metric of Greatness” in The Journal of Accountancy. Back then, greatness in our field was largely equated to size: Top 100, Best of the Best, Top 500, Fastest Growing. But it begs the question, does size alone define a firm’s greatness? 

Accounting is not just an industry; it is a profession. By definition, a profession is “a principal calling requiring specialized knowledge and commitment.” Personally,  after almost 50 years in the field, I’ve come to truly embrace my professional role as a “Trusted Advisor.” This calling transcends mere technical expertise — it’s about serving as a steadfast, trustworthy confidant and guide. Though I haven’t directly served clients in two decades, many still call, finding valuing our relationship and seeking my advice. 

So, what does true greatness in our profession look like? In today’s landscape, it seems that those who sell out to the highest bidder are in the lead. My own firm sold 10 years ago for a lucrative offer, and a majority decision I candidly voted against. Reflecting now, I wonder whether we made a strategic error or simply gave in to market pressures. Perhaps this is an opportune time to reassess our purpose as a profession. 

At our proprietary conference MPB | Leadership Accelerated (Managing Partner Bootcamp), we dedicate significant time to client service and discuss the core expectations that clients have of our profession and us as professionals. To me, a truly great firm places client service at its core and is committed to fostering a first-class client experience. Great firms also grow their people, creating learning environments that foster exceptional talent. This is not just a “nice to have” but a necessity, given that more than 70% of our workforce comprises millennials and Gen Xers who prioritize professional development. Investing in people and technology is equally critical for long-term success. Without these investments, a firm may meet short-term profitability targets but risk stalling its future growth and relevance. 

Talent acquisition should be based on availability, not just current need. I’ve learned over the years that having the right people in place is often the solution to nearly every challenge. Additionally, great firms plan strategically for the future, despite the unpredictability of change. Without a forward-looking strategy, firms risk losing control of their own destinies. 

Moreover, great firms play a vital role in their communities, often serving as pillars of charitable engagement. However, I’ve observed that after acquisition, many firms abandon their community involvement, as larger firms tend to reallocate these resources.  

Finally, great firms cultivate strong leadership, nurturing current leaders and preparing the next generation. Leadership has never been more essential in navigating the fast-paced changes and complexities facing our profession. Our leaders must be able to communicate effectively, think creatively, and adapt quickly. 

Yes, our profession is evolving and consolidating rapidly. But amid this change, let’s not forget who we are and why we do what we do. Let’s redefine greatness — not solely by size, but by the depth of our commitment to clients, employees, communities, and the future of our profession. 

Business leaders of many privately owned companies often face an overwhelming volume of accounting and financial data. This flood of information can obscure a clear understanding of their organization’s full financial profile, leaving them flying financially blind.

Common challenges include:

• Information overload: Leaders struggle to interpret big-picture financial results from excessive data.
• Too much detail: Financial and accounting reports often dive into considerable details, bogging leaders down in “financial weeds.”
• Decision-making effect: Without a clear financial profile, leaders lack the foundation to best evaluate results and to make the most informed decisions possible.

This gap presents a significant opportunity for CPAs to step in and deliver clarity through what I call “Financial Fundamentals” — concise, relevant insights that enhance decision-making.
The difficulty, time and cost of procuring third-party capital leaves many privately owned companies thinly capitalized, making the need to understand and monitor their full financial profile essential.

They are susceptible to both the positive and negative effects of fluctuations in operating earnings and cash flow, as well as their related impact on capital components, including liquidity.

The opportunity for CPAs

CPAs are uniquely positioned to address this critical need. By leveraging their expertise, CPAs can condense complex financial data into meaningful FF that:

• Simplify critical insights.
• Strengthens client relationships.
• Differentiates their services in an evolving and competitive market.
• Adds value to their firms.

CPAs who want to deliver Financial Fundamentals should consider the following framework: 

1. Define FF: Identify the most critical financial insights, such as cash flow, operating earnings, and capital components.
2. Calculate FF: Extract these insights from existing, readily available data.
3. Summarize FF: Present insights clearly and concisely, using formats that are easy for clients to understand.
4. Report FF: Communicate findings effectively, ensuring clients can act on the information provided.

In complex situations, keeping things simple often leads to the best outcomes. A timeless principle to remember: Simplicity is the ultimate sophistication.

By mastering Financial Fundamentals, CPAs can position themselves as indispensable advisors.

The value of FF

For business leaders, here are the values of FF:

• Clarity and confidence: Business leaders gain a simplified yet comprehensive view of key financial elements, including their trends and drivers, fostering informed decision-making and peace of mind.
• Enhanced Tools: FF strengthens existing KPIs, dashboards, and operational reports for a well-rounded financial framework.

For CPAs, the value of FF includes:

• Market differentiation: They position CPAs as innovative, client-focused advisors.
• Consultative services: They increase opportunities for consulting engagements.
• Professional growth: They expand expertise and deepen client engagement.
• Business success: They help CPAs strengthen relationships by providing insights that are often overlooked or underreported.

In short, Financial Fundamentals play a pivotal role in monitoring performance, evaluating business health, and facilitating communication with stakeholders.
A winning analogy: Football fundamentals

Success in football hinges on mastering fundamentals like blocking and tackling. Similarly, business success depends on strong Financial Fundamentals. 

Football coaches who emphasize these basics enhance their teams’ performance and their own careers. Similarly, CPAs can further empower business leaders by providing and teaching FF.

Like a football team, a business might succeed without strong fundamentals, but their ability to thrive is significantly reduced. Without fundamentals, the likelihood of undesirable outcomes increases.

CPAs have the expertise and cross-professional relationships to deliver this critical guidance. If you don’t provide Financial Fundamentals, who will? Your competitors?

Call to action: Delivering Financial Fundamentals

Every aspect of life and business improves when fundamentals are prioritized.

Business Financial Fundamentals are essential across all stages of a company’s lifecycle, whether it is a startup, in survival mode, experiencing growth, or planning an exit.  

As the name suggests, Financial Fundamentals are just that: fundamental. They form the bedrock of succinct and understandable financial comprehension.

Despite significant investments in accounting and financial reporting, many organizations lack succinct and understandable FF. This gap creates a prime opportunity for CPAs.

Key actions for CPAs to take include:

1. Simplify reports: Use plain language, reduce jargon, and focus on what truly matters.
2. Collaborate with stakeholders: Engage with bankers, clients, and other business leaders to gather diverse insights and build advocacy.
3. Focus on core financial concepts: Highlight critical areas such as cash flow, operating earnings, and capital components like financial health, value, and borrowing capacity.
4. Condense insights: Summarize FF into a single, digestible report.
5. Host workshops: Share expertise through case studies and training sessions, reinforcing the value of Financial Fundamentals.

Why now?

Financial Fundamentals is a relatively new concept, meaning there is currently minimal competition in this space. CPAs who embrace it now can:

• Dominate their market.
• Build a reputation as innovative, indispensable advisors.

By prioritizing Financial Fundamentals, CPAs further empower clients while elevating their professional standing. 
With FF, CPAs can drive client success while cementing their role as indispensable advisors. Mastering Financial Fundamentals is not just an opportunity for CPAs — it’s a necessity for staying ahead in an ever-evolving and competitive landscape. 

The question isn’t whether to embrace Financial Fundamentals, but rather: When will you start?