Effective communication to help avoid litigation

By Sarah Beckett Ference, CPA

What we've got here is failure to communicate."

This oft-quoted line from the 1967 cinema classic Cool Hand Luke may elicit a smile, but that smile quickly fades when a communication failure leads to a professional liability claim against a CPA firm. Consider the following scenario:

A CPA was engaged to provide bill-paying and bookkeeping assistance and prepare monthly financial statements for a restaurant group. The client's books and records were typically in disarray, and necessary documentation was rarely available on time. In an effort to keep the engagement moving, the CPA firm reconciled accounts, located source documentation, and performed other tasks it believed necessary to facilitate the services. At the conclusion of the engagement, the firm issued an invoice for additional time incurred, catching the client by surprise. The client refused to pay, indicating that had it been informed in advance, the issue would have been rectified before additional time was incurred by the firm. The firm terminated the client for nonpayment and sent the client to collection. Faced with a collection action, the client countersued the firm for negligence.

What went wrong? The CPA faced a claim, in part, because of a "failure to communicate." Other professions encounter similar challenges. Indeed, a 1997 University of Chicago study suggested that how a physician communicates with patients influences whether the patient sues the doctor for malpractice after a bad outcome. While a CPA firm's services are quite different from a physician's, CPAs can apply this lesson to their interactions and communications with clients.


Prospecting and proposing

A CPA's initial communications with a potential client — whether a prospecting call, a written proposal, or a casual introduction — help set the tone for the client relationship. Not every client understands the types of services, and their limitations, offered by a CPA firm. In an attempt to satisfy a prospect's request, some practitioners may embellish the services or outcomes they are able to provide. Be careful not to guarantee or overpromise results. Rather, ask probing questions to understand prospects' objectives and the issue they are seeking to address. Articulate how a service permissible by professional standards can help meet their needs.

Engagement letters

The engagement letter should be the written articulation of a previously held discussion with the client. This document is one of the primary tools to help reduce the expectation gap between the client and the CPA. To further reduce this gap, discuss the engagement letter with the client rather than simply sending it via email. Explain its content and confirm or clarify the objectives, scope, limitations of the service, billing arrangements, and other terms of the engagement. Give the client the opportunity to ask questions, and mutually agree on expectations for service. While such detailed discussions are not practical for every client every year, consider having this discussion with new clients and high-risk clients, and for engagements where the scope and work product are not straightforward, such as consulting engagements.


A failure to plan is a plan to fail. Before the engagement begins, meet with the client and agree on an action plan. What is the anticipated start date? What is needed, and when, in order for the firm to proceed? What is the consequence if the client is not ready as agreed? What documentation or access will the CPA firm need and when? What are the client's roles and responsibilities, and who will be the firm's point person for information requests, inquiries, and other matters?

Develop a communication plan to guide discussions between the client and the firm. This is particularly helpful on large, longer-term engagements. Set a cadence for status meetings whereby the firm reports on engagement progress, communicates any unexpected circumstances encountered, raises issues or open items that require immediate client attention, and addresses how these items may impact fees. Ensure that all team members are aware of the plan.


Implementation of the plan

Put the communication plan into place and adhere to it even if it appears there are more pressing tasks at hand. Things aren't always as they appear, and regular status meetings provide the client, and the CPA, the opportunity to comment on how the engagement is going and address any issues noted. In the absence of this routine communication, the parties may be lulled into a false sense of tranquility.

Addressing issues

The anticipation of a difficult or contentious conversation with a client may fill you with dread and anxiety. However, time is rarely a friend when it comes to issue resolution. Candidly discussing items with the client early on engages all parties in the solution, thus increasing client buy-in. Explain the issue to the client, present and discuss possible options or solutions, and have the client choose how to proceed. Be sure to document this discussion.

Managing scope

If the client requests additional services, great! But confirm scope changes or additional services in a written communication. If the new services are significantly different from the initial engagement, a new engagement letter is appropriate. If not, an email may suffice.

Issuing deliverables

The CPA firm's work product is an important form of client communication. Check the engagement letter and planning meeting documentation to ensure the work product being delivered is what was promised. Consider attaching a transmittal letter to the deliverable when issued. This transmittal letter may reference the original engagement letter, highlight any previously agreed-upon changes in scope or work product, remind the client of any limitations on distribution or use of the deliverable, and provide instructions to the client regarding the next steps. If appropriate, meet with the client to help ensure sufficient understanding of the work performed, findings, and conclusions reached.


Post-engagement debriefs

After the dust has settled, ask the client for feedback. Provide an opportunity for the client to ask questions and provide comments about the engagement. Use this knowledge and incorporate it into future engagements. Similarly, engagement team members should also be provided with the opportunity to comment on what went well and improvements the team could make. Generally held immediately after engagement completion, these meetings provide an excellent way to continuously improve service.


Training isn't solely for technical topics. Provide training on effective communication to all levels within the firm. Leaders should serve as role models for staff by making effective communication part of the firm's culture.


If a dispute arises, suggest mediation as a first step toward resolution. Mediation is a more formal method of communication using a neutral third party to moderate the discussions. While the client and the CPA can agree to mediate a dispute at any time, agreeing to do so in advance vis-à-vis an engagement letter provision when cooler heads prevail is recommended.


The iconic movie character Forrest Gump told us that "Mama always had a way of explaining things so I could understand them." Every communication with the client, whether it is a formal engagement letter or work product or an informal email, text, or elevator conversation, helps to establish a common understanding. Take care when engaging in all forms of communication. Effective communication can be one of the best medicines to help avoid litigation.

Sarah Beckett Ference, CPA, is a risk control director at CNA. For more information about this article, contact specialtyriskcontrol@cna.com.

Continental Casualty Company, one of the CNA insurance companies, is the underwriter of the AICPA Professional Liability Insurance Program. Aon Insurance Services, the National Program Administrator for the AICPA Professional Liability Program, is available at 800-221-3023 or visit cpai.com.

This article provides information, rather than advice or opinion. It is accurate to the best of the author's knowledge as of the article date. This article should not be viewed as a substitute for recommendations of a retained professional. Such consultation is recommended in applying this material in any particular factual situations.

Examples are for illustrative purposes only and not intended to establish any standards of care, serve as legal advice, or acknowledge any given factual situation is covered under any CNA insurance policy. The relevant insurance policy provides actual terms, coverages, amounts, conditions, and exclusions for an insured. All products and services may not be available in all states and may be subject to change without notice.

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