No rush to sign: client agreements from government entities not always a fit for CPA firms.

• Position: PROFESSIONALISSUES

Some CPA firms are being pressured by governmental clients to execute agreements or contracts in lieu of traditional CPA engagement letters. Typically, such boilerplate agreements and contracts are used by governmental entities for all independent contractors. As such, they contain many conditions and caveats that are not necessarily appropriate with respect to the professional services the accounting firm provides.

It's important, therefore, that before you contractually bind your firm to such an arrangement, you understand all the implications. Make sure you are comfortable with the agreement and expectations that will fall on your firm.

For example, many of the agreements attempt to shift liability from the governmental entity to the CPA firm and have indemnification clauses that extend the CPA firm's responsibilities to more than just the quality of the professional services performed. Some of the indemnification language includes, for example, death or injury claims that would be appropriate for an agreement or contract with a construction firm, but not an accounting firm.

In addition, some of the agreements attempt to broaden the professional responsibilities of the CPA firm, primarily in the area of fraud detection (see "Scope of Audit" in Example 1). Some agreements also may contain language and/or responsibilities that may impair independence. To avoid the "client expectation gap" that may pose significant risk to your firm, it is important that the agreement be modified to reflect a clear understanding regarding the scope and responsibilities of the engagement.

As such, before signing these types of agreements or contracts, ensure that your firm has considered the following risk management steps and has provided for the potential additional liability risks:

* Consult with CAMICO to review the agreement. It's best to use individuals knowledgeable with assessing accountants' professional liability risks and coverage implications, as well as contract terms.

* Push back. You don't have to accept the terms as written in an agreement, preprinted or not (Examples 1 and 2 show how an agreement can be revised to be more appropriate for an accounting firm.)

* Develop quality control measures and loss prevention strategies to manage the added liability exposures.

This information is provided by CAMICO Mutual Insurance Company. Find more information at www.camico.com/website/index.asp.

EXAMPLE 1

Excerpt from a School District Annual Audit...