From estate planning to AI: Managing CPA liability

Sponsored by Practising Law Institute

Sarah Ference, CPA, a risk control director at CNA, returned to the Journal of Accountancy podcast to discuss recent topics of the JofA’s Professional Liability Spotlight column. The conversation covers three timely issues facing CPA firms: the Great Wealth Transfer, ethical decision-making when clients push boundaries, and the need for practical AI policies.

The conversation also reflects on AICPA ENGAGE and the value of staying connected to developments in the profession.

The articles discussed in the episode:

May: “Managing CPA Liability in the Great Wealth Transfer.”

June: “Making the Right Choice When No One Is Watching.”

July: “Drafting an AI Policy That Actually Works.”

What you’ll learn from this episode:

• Why the Great Wealth Transfer is creating liability risks for CPAs in estate planning, tax filings, and other services.
• How CPAs can respond when clients want to skirt rules because they perceive regulatory oversight or enforcement to be weakening.
• Why accounting firms need an AI policy and key considerations when establishing guidelines for AI use in practice.
• Ference’s takeaways from AICPA ENGAGE last month.

Play the episode below or read the edited transcript:

— To comment on this episode or to suggest an idea for another episode, contact Neil Amato at Neil.Amato@aicpa-cima.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 podcast episode provides information, rather than advice or opinion. It is accurate to the best of the speaker’s knowledge as of the publication date. This podcast episode 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.

Transcript

Neil Amato: Hello listeners, this is Neil Amato with the Journal of Accountancy, and you’re listening to the JofA podcast. This episode takes a look at recent Professional Liability Spotlight columns in the JofA and you’ll hear the conversation with one of that column’s authors after a message from our sponsor.

[Sponsor message]

Amato: Welcome back. Sarah Ference is our guest. She’s a repeat guest. Sarah is a CPA who serves as a risk control director at CNA, which is the underwriter of the Professional Liability Insurance Program with the AICPA. As I said earlier, Sarah is one of the authors of the Professional Liability Spotlight column, and we are summarizing those recent columns in this episode. Sarah, I’ll get right to it with a welcome back and then this first question, which is about the May topic, the Great Wealth Transfer. First, what is the Great Wealth Transfer?

Sarah Ference: Thank you so much for having me back, Neil. It’s always a pleasure. You know, the Great Wealth Transfer, and I’m using kind of my air quotes, even though you can’t see them. The Great Wealth Transfer is considered to be the handover of trillions of dollars of assets from baby boomers to others, other generations, over the coming years. And it actually represents one of the largest shifts in capital from one generation to another that we’ve seen in modern history.

Amato: That’s great. And so the reason I’m asking about the Great Wealth Transfer is the May topic, which was a popular one with our audience. The headline was “Managing CPA Liability in the Great Wealth Transfer.” What were some of the highlights of that article to you?

Ference: Well, I can see why this topic was so popular. I mean, readers probably have a client or multiple clients that are part of this Great Wealth Transfer, or they may even be a part of it themselves in some way. I mean, I’m a Gen Xer with baby boomer parents, and I was drawn to it.

But as part of the shift in assets between one generation to the other, CPAs are likely going to be asked for assistance in some way. And maybe that is assistance with estate and tax planning, or it’s a preparation of a related tax filing, or maybe after the client passes away, it’s being a trustee of the estate or preparing the estate tax return. And it’s great to be asked for help, especially from those longtime clients. But these services are not without risk and have resulted in some really large claims for our CPAs.

For example, with an estate tax return preparation, these are complex and require specialization to help avoid costly errors. Filing due dates are not always as routine and are more likely to be missed, which can lead to penalties and missed elections, which can lead to claims against our CPAs. And then, unfortunately, whenever family is involved and emotions are involved and there’s a large amount of money at stake, which is likely going to be typical with these kind of Great Wealth Transfer services, any related claim is likely going to be expensive, emotional, and take a long time to resolve.

And the article itself offers just suggestions on what CPAs can do to not only address the needs of their clients, because I know CPAs are going to want to do that and going to want to help their clients, but also do so in a way that helps them manage their own risk.

Amato: That’s a rundown of the May topic. I really also like this topic for the June Professional Liability Spotlight. It’s timely, and while it’s tailored to CPAs, I think a great topic for all business professionals, “Making the Right Choice When No One Is Watching.” What’s a rundown of that article?

Ference: Well, this is another one of my favorites because it discusses the psychology of risk-taking, and learning about how our brains operate is always just fascinating to me. The article highlights some recent regulatory enforcement trends that we’ve seen and how a client might be more willing to take on additional risk if they think they’re not going to get caught. It’s kind of like a kid.

But the article highlights the CPA’s role as the protector of the public interest, but also how a client’s risky behavior can actually create additional risk for the CPA.

Amato: You mentioned those trends in enforcement and regulatory issues. I think it’s applicable with news of lower IRS staffing, for instance, that clients might think, you know, what can I get away with, or will I really get audited? But what again are some of the reasons that CPAs should not be aligned with client thinking in that regard?

Ference: Yeah. Lower IRS staffing creates the perception, whether it’s accurate or not, of reduced oversight. But regardless of enforcement trends or agency resources, the CPA’s obligations and ethical standards are the same. And one might argue that the CPA becomes an even more critical guardrail between that short-term temptation and balancing that with the long-term consequences when one gives in to that temptation.

And so what does this all mean for a CPA’s professional liability risk? Well, let’s say an emboldened client wants to take an aggressive position on a return now, or maybe they want to be a little bit more aggressive with their revenue recognition. And perhaps that position is maybe borderline acceptable, but what may seem acceptable now might be interpreted differently in the future when there is an audit. And if that position is later questioned, and maybe the IRS disagrees and assesses additional tax and penalties and interest, the client may allege that they were not adequately advised by their CPA, and a claim could arise from that.

Amato: Then the current column in the July edition that’s now live on journalofaccountancy.com, “Drafting an AI Policy That Actually Works.” I mean, there’s no risks at all with AI policy these days, right?

Ference: No risk at all with any kind with the use of AI. But yeah, AI is the topic du jour, not just the day or the month, the week, the year. And we’ve seen so many firms, we’ve talked to so many firms about what they’re doing with AI in their firms. And firms are in various stages of AI adoption and utilization in their practices and trying to figure out what’s right for them.

And I think this article will be helpful regardless of where firms are in that journey. Because like any journey, it’s helpful to have a map to guide where you’re going and how you’re going to get there, and just to kind of give you some general guardrails and a path. And an AI policy can help make sure you’re on the right path. This article discusses the considerations when drafting your own AI policy, because if you don’t know where you’re going, you’re probably not going to end up where you want to be. And regardless of that, your clients are likely going to be asking how you’re using AI in your practice, and having an answer and being prepared to share that with your clients is going to be a good practice to do.

Amato: Thank you for that, Sarah. The second week of June, I look back on ENGAGE fondly. One, I got to meet you in person for the first time. I also got to make connections or renew connections with more than 60 colleagues and members, which is cool to me. I actually did make a list.

Ference: I was wondering where the 60 came from.

Amato: Exactly. I had to count up. I was like, oh my gosh, how many people did I meet? And I thought, that’s one of the cool things about ENGAGE. As you’ve now had several weeks, nearly a month, to reflect on it, any takeaways from the conference?

Ference: Yeah, I mean, like you, I think I really like being able to connect with people that I work with. It was great to meet you in person. It’s also great to connect with practitioners that we might only speak to on the phone and actually meet them in person. It’s great.

And then, my team and I, we’re all CPAs, and we all need our own education and training. And that’s always a great way for us to stay up to date on what’s going on in the profession to make sure that we not only get our CPE to maintain our licenses but also make sure we’re staying up to date with what’s going on so we can provide the best advice to our firms.

Amato: I think that’s a great summary of ENGAGE, and thanks again for summarizing the Professional Liability Spotlight columns. Sarah, thanks again.

Ference: Thank you, Neil.