One of the leading providers of accountant professional liability insurance in the United States including risk management consultation to CPA firms highlights some of the legal reasons why an accountant must terminate the relationship with the client. However, once you have made the decision to part ways with the client, the challenge is when and how you will do it.
During the course of serving the client, an accountant may uncover some mistakes in the previous returns or errors when providing non-tax related services. It is the professional responsibility of the accountant to notify the client about the errors and advise him to make immediate corrections. While the client is not really required by statute to make corrections through an amended return, if the client decides not to rectify the error it is a red flag to the accountant of a potential trouble.
The acts of the client predict his future behaviour. The client may eventually ask the accountant to take an unsupported or aggressive tax return. According to CPA Mutual, a provider of professional liability insurance, the accountant should seriously consider the termination of the professional relationship.
Another reason why a professional relationship must be terminated is when there is a conflict of interest in the performance of tax work. For example, the representation of one client before the IRS may directly affect another client. It is also possible that the accountant’s responsibility in successfully representing a client will be limited by the responsibilities towards another client.
If the accountant determines that there exists a conflict of interest, a client can still be represented if not prohibited by law. The accountant can also inform both parties regarding the conflict of interest. If they still allow representation in spite of the situation, a written consent must be made. Failure to do so will be a professional violation and can result into unexpected liabilities for the client.
Accounting firms must be aware that there is accountant professional liability insurance that will cover whatever professional fees incurred resulting from an official audit, enquiry, investigation or review of a filed return by CRA and other pertinent government review agencies.