A merger or transaction can pave the way to inorganic growth for accounting firms, but they are rarely without risk. Such transactions can bring about a number of liability risks for accounting professionals and their practices. From ethical compliance and client retention to cultural alignment and financial exposure, the stakes are high at every stage of the transaction journey. That’s why having a strong risk management framework is essential when considering a merger or acquisition.
Here, we’ll explore key strategies to help your accounting firm identify, assess, and mitigate potential risks during a merger or acquisition to help you navigate those bumps in the road and drive toward success.
What are the risks for CPA firms considering a merger or acquisition?
Mergers and acquisition (M&A) activity involving accounting firms continues to surge. More than half of accounting executives reported they were planning for inorganic expansion in 2025. However, this growth comes with potential risks for accounting practices and CPAs.
Firm mergers or acquisitions have the potential to increase profitability, but a smooth transition isn’t guaranteed. CPA firms, whether they’re buying or selling, must go into a transaction with their eyes open, understanding the specific risks of the merger or acquisition Read on to learn the most common risks of M&A transactions for accounting firms.
Top 5 sources of risk in accounting firm M&A transactions
There are risks involved in any type of transaction, whether it be a merger or an asset acquisition, but some may have a larger impact on your firm’s risk profile. Here are some of the red flags you can watch out for if your CPA firm is considering a transaction:
Risk #1: inadequate due diligence
Thorough due diligence is the foundation of any successful merger or acquisition. Failing to fully examine existing clients, personnel, areas of practice, quality of services, independence issues or conflicts of interest, outstanding liabilities, or pending legal or regulatory issues can lead to severe financial and reputational consequences for your firm. Inadequate due diligence may also mask red flags around staffing, technology systems, and a firm culture that could derail the integration post-transaction.
Risk #2: increase in professional liability
When your firm merges with or acquires another firm, you’re not just adding new clients and staff, you’re also inheriting their risks. If the other firm has a history of professional negligence, poor client documentation, or past claims, your firm’s professional liability exposure could be affected.
Risk #3: inaccurate valuation
Valuing a CPA firm is complex and influenced by multiple factors such as client retention, billable hours, revenue projections, staff continuity, and more. Overestimating the value of the firm you're merging with or acquiring may lead to overpaying, while underestimating future risks such as client attrition or reductions in profitability that may affect your return on investment.
Risk #4: barriers to integration
Even when the numbers add up, cultural misalignment, leadership conflict, and incompatible systems can negatively impact a merger or acquisition. Differences in communication styles, client service models, handling of working papers, employee benefits, or even software tools can delay productivity and increase the likelihood of staff turnover.
Yes, you’ll be taking on a lot of risk when you consider a merger or acquisition, but there’s also quite a bit of potential for reward. Find out how to help efficiently and effectively scale your CPA firm in our growth FAQs.
Then, learn more about the risks of mergers and acquisitions for CPA firms by watching our webcast replay!
How to help mitigate M&A risk
For CPA firms, M&A comes with inherent industry-specific risks, like client retention or compliance challenges. Taking proactive steps to mitigate these risks can help protect your firm’s reputation, profitability, and long-term success.
Conduct a risk assessment
Before signing any agreements, conduct due diligence and a comprehensive risk assessment to identify potential financial, operational, ethical, and reputational threats. For CPA firms, this means going beyond the balance sheet. You’ll need to evaluate the target’s service delivery quality, client service standards, internal controls, and staff competencies. A solid pre-transaction risk assessment can help reveal hidden liabilities and ensure you're entering the deal fully informed.
Screen the new client list
Not all clients are worth carrying over. Carefully review the target firm’s client roster before and after integration to evaluate profitability, industry diversification, billing history, payment behavior, and overall fit with your firm's service model and risk tolerance. Watch for high-risk sectors, unresolved disputes, or clients with litigious reputations. Keeping problematic clients in the mix can increase liability and damage your firm's long-term reputation.
Review engagement letter procedures
Consistent and robust use of engagement letters is crucial for helping to limit exposure to professional liability. As part of the transaction, evaluate how both firms handle engagement letters. Ensure they clearly define the scope of services, responsibilities, and limitations. Post-transaction, adopt standardized procedures and update language if needed to reflect your firm’s risk management expectations and reduce ambiguity in client agreements.
Be careful with words
Although the words “acquisition,” and “merger,” can be used interchangeably in everyday vernacular, they are not the same thing. Referring to an asset purchase as a “merger” in internal or external communications may support an assumption that the acquiring firm is assuming all the liabilities of the acquired firm. For more on managing this risk, read Do names matter? Risk and the use of ‘merger’ or ‘acquisition.’
Assess IT and data security risks
CPA firms handle sensitive financial and personal data, making cybersecurity a top-risk area. Review the target firm’s technology infrastructure, written information security plan, and compliance with relevant privacy laws such as the Gramm-Leach-Bliley Act (GLBA). Compatibility between systems and protocols must also be assessed. Weak cyber hygiene in a target firm may open the door to costly data security incidents and client trust issues.
Review claims and potential claims related to the target firm
Carefully examine the target firm’s history of malpractice claims, disciplinary actions, and any known potential claims that haven’t yet been reported. This insight is key for evaluating future exposure under your existing professional liability policy and helping to ensure that there are no surprises post-acquisition. Documentation of workpapers, audit trails, and internal complaint handling procedures should also be reviewed as part of the claims analysis.
Create a post-integration culture
Even the most financially sound merger or acquisition can fail if cultural integration is ignored. Aligning team values, communication styles, and expectations post-transaction is key to reducing turnover and maintaining client confidence. Develop leadership initiatives, transparent communication channels, and shared goals that foster a unified firm culture that blends the best of each legacy organization.
Evaluate your professional liability insurance coverage
A merger or acquisition can significantly change your firm’s exposure, so it’s important to involve your professional liability insurance provider early in the process. Review your current coverage limits, tail coverage options for the target firm, and how your policy may respond to potential liabilities associated with the incoming firm. Work with a provider who understands the CPA profession and can offer coverage options to reflect your unique post-transaction risk profile.
Understand your risks through any M&A transaction
The best way to manage your risks is to first understand them. By learning more about the risks that mergers and acquisitions expose you to, you’ll be able to make informed decisions and take appropriate measures to help mitigate your risks and help protect your firm.
Want to learn more about risk management in a merger or acquisition? Download our free M&A Checklist for CPA firms! Also check out Professional liability risk stemming from CPA firm acquisitions – part 1 and part 2 for more insights.