Top CPA Solutions to Mitigate Tax Preparation Risks
Tax season is CPAs’ busiest time of year, and the volume of services we are required to deliver might result in increased professional liability risk. The looming deadlines and uncertainties around tax revisions make the tax season extremely stressful for accountants.
Professional liability risk for accountants providing tax services might result from errors in drafting and submitting tax returns for clients, cyberattacks that put customers’ financial and personal information at risk, or when the client asks for services that are beyond the realm of a CPA’s knowledge. However, by following some procedures, we may lessen the likelihood of any of them occurring and, as a result, our professionals can reduce the risk during tax season.
Reducing the Risk of Professional Liability During Tax Season
Stick To Your Service Scope
We may be meant to give tax services, but our customer is also looking for more real answers to their company management problems. As their accountant, we must give evidence-based suggestions based on the financial analysis and should avoid making business choices on their behalf.
Going beyond the boundaries of our services may expose us to future errors and may lead to litigation with our customers. If we wish to grow our services, we should plan and remain prepared during a less busy period of the year.
Describe Your Client’s Services
If we understand our services, but our customer does not, then they may anticipate more and file a claim because we did not meet their expectations. We should be careful and adequately explain our services in writing to avoid misunderstandings.
We may write an engagement letter that clearly defines what is and is not within the scope of the services we will deliver. The customer should sign the letter as well. If more services are necessary, create a second engagement letter or modify the original to explain the scope of these supplemental services. The client should recognize and sign new engagement letters yearly, even for a basic tax engagement.
Have A CPA Engagement Letter Signed
When arranging for tax services, an engagement letter may assist us in allaying worries over professional accountability. A signed engagement letter shows the agreement between us and our client to provide CPA solutions on our behalf.
Make sure to examine the engagement letter yearly and inform our customer that a fresh one is required before we begin providing tax services. This guarantees that our and the client’s expectations about the services remain consistent. It also helps us and our customers to clear any misconceptions regarding the nature of the services before beginning any work.
Protect Your Data
CPAs face a serious, rising, and continuous threat from cyberattacks. In 2019, cybersecurity breaches accessed 8.5 billion data, with the financial services sector being the most targeted. The data and personal information we have on file for our customers are very sensitive. Losing it might expose us to potentially disastrous repercussions ranging from monetary losses to regulatory action and reputational injury.
During tax season, ensuring cybersecurity is critical to avoiding technology interruptions, reputational loss, and compromised data. We may help safeguard our data by keeping our anti-virus software up to date, utilizing multi-factor authentication to access our network, sending encrypted email conversations, and restricting access to client information to those who need it.
Ensure That Your Client Keeps Their End of The Bargain
Regarding providing great services, we and the customer should be on the same page regarding information collection. This involves ensuring that the client presents us with the essential financial records on schedule and that the data is correct and full. Otherwise, we risk delivering services based on inaccurate information. This might jeopardize our work’s quality and reputation, resulting in a professional responsibility claim or lawsuit and heightened attention from tax authorities.
Specify them in the engagement letter and insist they acknowledge and sign it before we provide CPA tax preparation services to ensure that our clients know their obligations.
Obtain A Professional Liability Insurance Policy
Sometimes, even if we take all the essential precautions, it may not be enough. Professional mistakes are common during the frantic busy season and significantly enhance the likelihood of a customer initiating a claim or lawsuit against us.
Make sure we have professional liability insurance in place to assist in mitigating the financial and reputational harm that a legal action might bring. This insurance protects us against negligence (failure to follow specified accounting standards or tax requirements), erroneous advice, misrepresentation, and mistakes and omissions.
Even with many issues that CPAs might face, we can take steps to in avoiding mistakes. We need to make sure that we and our customers are on the same page, and that we mutually adhere to our scope of service, and document. Consider purchasing professional liability coverage to assist in softening the financial repercussions of errors coming from our professional solutions to help further limit professional liability risk.