Claims Against CPA’s for Failure to Detect Fraud

The July issue of Accounting Today makes important points about accounting risk for failure to detect and report fraud.  Sarah Ference, Risk Control Director for CNA, notes that while CPA engagements are not typically designed to detect or report fraud, most clients, and perhaps most jurors, think CPAs should always be on the lookout for fraud.  25% of claims arising from audit and attest engagements allege that the CPA failed to detect and report fraud.   6% of tax service claims also allege a failure to detect and report fraud.   Ms. Ference notes the importance of engagement letters to manage expectations and, where appropriate, disclaim reliance.  Mission creep, of course, can render the best engagement letter ineffective.   Finally, the article suggests that anything sinister or unusual observed during the engagement should be reported in writing to the client.    The disconnect between client/juror expectations and an accountant’s scope of engagement will apparently always be with us.  Paying attention to potential fraud and reporting it may help your accounting firm avoid becoming a data point in the claims statistics.

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