Sick Accounting profession wants liability relief like Doctors

Implications: 1. Other than payroll costs, legal costs are the largest expense in an accounting firm.

2. Doctors got medical malpractice relief last year and now the accountants want the same treatment.

3. But are the accountants willing to lower their billing rates, if they have less legal exposure?

Analysis: There is no question that legal costs to the accounting profession have gotten out of control. In many instances they are the only ones standing with deep pockets and, as a result,  they get caught with a disproportionate share of the cost. It is also risky to not settle some of these law suits before they go to trial as there is too great a risk to let their fate lie in the hands of an unsophisticated jury. Although I have been out of the profession for 4 years, it was not untypical for a partner to absorbs hundreds of thousands of dollars of legal cost each year, more than that absorbed by a surgeon, who now gets some medical malpractice protection. One would think that a surgeon faces more risk than an accountant, but in reality there are very few, if any, professions or businesses that pay more than an accountant at a major firm.

Certainly the same arguments made to protect doctors can be applied to accountants. However, this article says that accountants can get sued by not only the users of financial statements, but their clients as well. This is only partially true. In recent years, most accounting firms have instituted clauses in their arrangement letters with accounting firms that state in the event that differences concerning services or fees should arise that are not resolved by mutual agreement, that the company and auditing firm agree NOT to demand a trial by jury in any action, proceeding or counterclaim arising out of or relating to the services and fees for the engagement. Thus, differences are generally resolved through arbitration, supposedly to reduce the cost of both parties, but nevertheless they waive the right to a trial.

Currently the extraordinary high billing rates charged by accounting firms cover not only the cost of their labor, but also other indirect costs, including litigation costs. Therefore, if accountants end up successfully limiting their liability, then shouldn't they also be required to cap their billing rates? Accountants have recently got a windfall in profits from Sarbanes-Oxley, lets not give them another windfall.