CHAPTER 1 - LIABILITY PROTECTION AND THE FORM OF YOUR FIRM

1.0  Introduction

1.1 Traditional Forms Of Practice

1.1.1 Sole Practitioner

1.1.2 General Partnership

1.1.3 Professional Association

1.2 Development Of Limited Liability Entities

1.2.1 The Corporate Form, Generally

1.2.2 Professional Corporation

1.2.3 Limited Liability Partnership And Limited Liability Company

1.3 Selecting The Right Organizational Form

1.4 Conclusion

CHAPTER 2 - ENGAGEMENT LETTERS

2.0 Introduction

2.1 The Contract With Your Client

2.1.1 Prevent Differences In Expectations

2.1.2 Take On The Difficult Issues Up Front

2.1.3 Condition Your Client To Respect Your Interests

2.1.4 Tailor Your Letter To Your Engagement

2.1.5 Create Letters Early And Often

2.2 Defining Your Engagement

2.2.1 Identify Your Client

2.2.2 Identify The Scope Of Your Services

2.2.3 Identify Your Timetable

2.3 Mutual Responsibilities

2.4 Limitations Of Your Engagement

2.5 Fee Agreement

CHAPTER 3 - THE SARBANES-OXLEY ACT OF 2002

3.0 Introduction

3.1 Overview of the Act

3.2 Public Company Accounting Oversight Board (“PCAOB”)

3.2.1 Registration

3.2.2 Rulemaking

3.2.3 Inspections

3.2.4 Investigations

3.3 Provisions of Greatest Importance to Auditors

3.3.1 Document Retention

3.3.2 Review of Audit Work

3.3.3 Review of Internal Control Structure and Procedures

3.3.4 Quality Control

3.3.5 Auditor Independence

3.3.5.1 Prohibited Services

3.3.5.2 Partner Rotation

3.3.5.3 Reporting to Audit Committees

3.3.5.4 Conflict of Interest

3.4 Provisions Relating to Management

3.5 Civil and Criminal Proceedings

3.6 Possible Cascade Effect

3.7 Conclusion

CHAPTER 4 - DETECTING CLIENT FRAUD, THEFTAND OTHER ILLEGAL ACTS

4.0 Introduction

4.1 Professional Standards

4.1.1 Auditing Standards

4.1.2 Accounting And Review Standards

4.2 Overview Of Claims

4.3 Protective Measures

4.3.1 Planning And Evaluating

4.3.2 Communicating And Documenting

4.3.3 Engagement Letters

4.3.4 Performing And Concluding Your Engagement

4.4 Conclusion

CHAPTER 5 - PROTECTING CLIENT CONFIDENTIALITY

5.0 Introduction

5.1 Basic Principles Of Protecting Client Confidentiality

5.2 Impact Of Federal And State Law

5.3 Client Requests For Information

5.3.1 Individuals

5.3.2 Business Organizations

5.3.3 Redundant Requests

5.4 Third-Party Requests For Information

5.4.1 Informal Requests

5.4.2 Formal Requests

5.5 Conclusion

CHAPTER 6 - REJECTING OR WITHDRAWING FROM CLIENT ENGAGEMENTS

6.0 Introduction

6.1 Knowing When To Reject And Withdraw From Engagements

6.1.1 Prospective Client Engagements

6.1.2 Existing Client Engagements

6.2 Documenting The Rejection Or Withdrawal

6.3 Cooperating With Your Client Or A Successor Accountant After Disengagement

6.4 Sample Disengagement Letter

6.5 Conclusion

CHAPTER 7 - FEE COLLECTION

7.0 Introduction

7.1 Improve Your Billing Practices

7.1.1 Retainers

7.1.2 Regular Billing

7.1.3 Payment On Delivery

7.2 Competing Concerns

7.3 Negotiation And Compromise

7.4 Assess The Risk Of A Counterclaim

7.5 Assess Materiality

7.6 Consider Applicable Statutes Of Limitation

7.7 Conclusion

CHAPTER 8 - FILE RETENTION

8.0 Introduction

8.1 Retaining v. Discarding Files

8.2 Existing Clients v. Former Clients

8.3 Contents Of Files

8.4 Statutory And Regulatory Considerations

8.5 Litigation Considerations

8.6 Sample File-Retention Policy

8.7 Conclusion

CHAPTER 9 - LIABILITY EXPOSURE TO THIRD PARTIES

9.0 Introduction

9.1 Introduction To Third-Party Liability

9.2 The Privity Standard

9.3 The Near-Privity Standard

9.4 The Restatement Standard

9.5 The Foreseeability Standard

9.6 Protecting Yourself From Liability To Third Parties

9.7 Privity Letters

9.8 Conclusion

CHAPTER 10 - ALTERNATIVE DISPUTE RESOLUTION (ADR)

10.0 Introduction

10.1 ADR Techniques

10.1.1 Mediation

10.1.2 Arbitration

10.2 Agreements To Engage In ADR

10.3 Engagement Letter Provision Invoking ADR

10.3.1 Mediation, Then Arbitration

10.3.2 Mediation Only

10.3.3 Arbitration Only

10.4 Agreeing To ADR After A Claim Is Asserted

10.5 Conclusion

CHAPTER 11 - DEFENDING AGAINST CLAIMS OF NEGLIGENCE

11.0 Introduction

11.1 Overview

11.2 Contributory Negligence

11.3 Assumption Of The Risk

11.4 Last Clear Chance

11.5 Comparative Negligence

11.6 Protective Measures

11.7 Conclusion

CHAPTER 12 - CLAIM REPORTING

12.0 Introduction

12.1 Overview Of Matters Covered Under A Typical Policy

12.2 Matters That Must Be Reported

12.3 When Must You Report A Claim Or Incident?

12.4 How To Report A Claim Or Incident

12.5 How To Proceed After Providing Notice Of A Claim Or Incident

12.6 Personal Counsel

12.7 Risk Management Hotlines

12.8 Conclusion