CPAs generally provide some form of accounting or other services for clients, such as bookkeeping, tax return preparation, strategic or business planning, and more.  These nonattest engagements do not result in a report prepared in accordance with technical standards (other the the AICPA’s Code of Professional Conduct).   Nonattest services may be a stand-alone offering, or provided in tandem with an attest service (such as a compilation, review or audit).  While no form of assurance, opinion or other conclusion is provided in nonattest services, this does not mean that they are risk-free engagements for the accountant.  There is professional liability risk in any service provided by a CPA.

Most attorney’s who specialize in defending professional liability claims agree that the best defensive tool available in any scope of service is a signed engagement letter with the client before services are rendered.  Despite this fact, there currently are no authoritative standards related to engagement letters for nonattest services, other than SSARS No. 21, Section 70, Preparation of Financial Statements, for CPA’s to follow when drafting these engagement letters.

Claims arising from engagement scope disputes often result from an expectation gap, where the parties have significantly different expectations about the scope of services to be performed.  There also may be engagement creep, where the CPA performs services beyond the scope of the agreed upon engagement.  For example, allegations of failure to detect fraud may stem from a CPA’s failure to examine cancelled checks when engaged to prepare bank reconciliations, or clients may file malpractice claims against accountants after incurring penalties or interest for failure to file payroll tax returns timely.

Accountants can take measures to prevent malpractice claims, such as the following:

• Discussing engagement scope, CPA responsibilities, and client responsibilities in detail with the client.
• Documenting the understanding with the client in a signed engagement letter prior to performing services and reissuing the letter at least annually.
• Supervising work performed by firm employees and holding clients accountable for supervising work performed by their own employees.
• Maintaining a system of quality control over services rendered.
• Continually managing client expectations to avoid expectation gap problems.
• Avoiding engagement creep by performing only those services agreed upon and documented in the engagement letter or an amendment to an original letter.
• Informing clients in writing of fraud, noncompliance or internal control weaknesses that come to your attention.
• Withdrawing from engagements when clients fail to fulfill their agreed-upon responsibilities.
• Perform proactive planning and due diligence.
• Document the advice you give, the information you receive, and the decisions made by the client.
• Document a disengagement by sending the client a professional, objective and rational letter that lets the client know that the engagement is ending at a specific date.

Tools like The Essential Nonattest Engagement Letter Toolkit provides example language for some of the most common nonattest engagement letters, as well as an example disengagement letter.