CPAs as CFO: meeting client needs, managing the risks

By Alvin Fennell III & Stan Sterna, Esq.

Helping a client by providing CFO services may sound like a smart way to increase revenue and solidify the client relationship – but CPAs in public practice need to be aware of the related risks.

“Professional liability insurance policies generally exclude coverage for services rendered when the policyholder also performs management duties or assumes management responsibilities on behalf of the client,” says Dave Sukert, JD, a senior vice president at Aon Affinity. 

“Additionally, it doesn’t matter whether a formal title like CFO is used to describe these activities,” said Sukert. “Once an allegation is made that a CPA performed management duties for a client, it raises a potential insurance coverage problem associated with exclusions that exist in most professional liability policies.  CPAs are consultants.  Once you start performing management duties, or your client thinks you are doing so, you’ve crossed the line.”

An old issue, now an emerging risk
“This issue has been around for 20 years,” said Ken Mackunis, the president of the AICPA Professional Liability Insurance Program. Today, many clients run their businesses online, and with the technology available, they can ramp up business growth in months, rather than years.  Many of these owners lack the skills to manage rapid business growth, so they turn to their CPA.  It’s a great new business opportunity.

“The good news,” Mackunis said, “is that CPAs do not have to decline this type of work.  It is possible for a CPA to render the services needed by the client, but practitioners should seek guidance in addressing the liability exposures and framing their role before agreeing to perform these services.  The client may not fully understand what services they need.  They may need consulting and controller type services to manage day-to-day accounting and tax functions, rather than a CFO. When CPAs frame the engagement as consulting, accounting and tax services, they minimize the risk that the client will expect them to assume management duties or perform management functions. Once the client considers you a decision maker, the liability exposure changes.”

If your client actually needs a CFO, consult with both your lawyer and your insurance broker about potential legal and insurance coverage issues before deciding how to proceed. Depending on the circumstances, it may be appropriate to have your lawyer draft an independent contractor agreement for you that limits your legal liability while performing this function for the client.  While this will result in payment of income taxable to you individually, it may be a more effective way to both help out the client and protect you and your CPA firm from liability under the circumstances.
Risk management guidelines
  • Be specific when you market your services
The work needed by these types of clients usually consists of traditional tax, accounting and consulting services.  Promoting managerial or CFO services in advertising materials and on your website may create an expectation that you can serve in a senior management role for clients.   A more effective means of communicating about your services is to promote it as “… outsourced tax, accounting and consulting services.”
  • Do NOT make management decisions
Stay in your consulting role. Remain objective. Provide written recommendations to the client, requiring the client to make all management decisions, and to provide their decision and instructions in writing.  Emails can be written quickly, and serve as important evidence in the event of a misunderstanding or dispute later. Communicating by phone may leave room for error.  If there is an email chain confirming conversations and your role as a consultant, lawsuits by clients are less likely to be filed – and if they are, the written communications can serve as critical evidence both in your defense and in avoiding a potential coverage dispute.
  • Do NOT sign contracts for the client
Binding agreements and contracts should be left to the business owner.  Only parties vested with the necessary written legal authority should enter into agreements on behalf of a business.
  • Clarify your role in your engagement letter

Engagement letters should clearly define the scope of services to be rendered. Clearly state the professional standards that apply to the services to be performed. In most cases, these will be the Statements on Standards for Consulting Services (SSCS) and the Statements on Standards for Tax Services (SSTS). During the engagement, the client may also request that financial statements be prepared or compiled for their use; these services are subject to the Statements on Standards for Accounting and Review Services (SSARS). When new services are added, issue an updated engagement letter describing them, and listing the applicable standards. Have the client sign the letter before rendering these services.

  • Stay within your scope of service
Once the scope of services has been defined, do not stray into performing services not covered by the professional standards listed in the engagement letter. Review the content of SSCS, SSTS and SSARS. Performing management duties or making management decisions for a client are not within the scope of these standards.

You might want to discuss with legal counsel inserting a clause in the engagement agreement that the client will defend and indemnify you in the event a management liability claim is pursued against you. Also, consult with counsel and your insurance broker about possibly having the client include you as an additional insured under their existing management liability policy. 

Also, consult with counsel and your insurance broker about possibly having the client include you as an additional insured under their existing management liability policy.

“My client is a friend. They would never sue me.”
Even if a CPA-client relationship has been close for many years, that can change when the client finds themselves in dire financial straits and they’re looking for someone to blame. 

Work with these simple precautions in mind, and you’ll better protect yourself, your CPA firm, and your client relationship.

Alvin Fennell III is a vice president and senior risk advisor at Aon Affinity, the administrators of the AICPA Professional Liability Insurance Program since 1967.  Al has over 30 years’ experience working with the Program in a variety of roles,  including underwriting, and the manager of sales and customer service teams. Stan Sterna, Esq. is a vice president and accountants risk control lead at Aon. Prior to moving into his current role, he was Director of Accountants Claims at CNA Insurance Companies. Stan also practiced law in the Chicago area, specializing in the defense of professional service providers. Stan is a frequent speaker and published author on topics related to accountants professional and cyber liability.

This article is provided for general informational purposes only and is not intended to provide individualized business, risk management or legal advice. 

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