Whether a partnership has two or more partners, one partner leaving the partnership can have a significant impact on the remaining partners and business. Certified Public Accountants are not immune to problems when a partner retires or withdraws from the partnership. Unresolved issues can lead to disruptions in business that could lead to the loss of clients and revenue. It is common for partners to disagree on various business decisions but providing seamless and uninterrupted service to clients should be a priority during the transition process.
An accountant was working less hours as he approached retirement and failed to timely appeal the Department of Agriculture's denial of his client's farm subsidy application in another state where the client owns land that produces and sells wheat, corn, and other crops. The accountant had completed this process for many years, where the Department of Agriculture would initially deny the application, only to overturn its original denial and issue a subsidy. An additional sum would then be received from a separate subsidy program from the Department of Agriculture. Anyway, after the oversight was discovered, the partner of the recently retired accountant filed the appeal but missed the deadline. Unfortunately, the Department of Agriculture rejected it, so the client lost out on a mid-five-figure subsidy, though he did receive the second subsidy.
But what should not be overlooked during the winding down period is the day-to-day obligations owed to clients. Notifying clients of the pending retirement is important, but even more critical is the establishment of a plan to review engagement agreements to ensure that the firm is familiar with its clients and can timely meet filing deadlines. The plan should be implemented well in advance of the anticipated retirement date while the partner is still an active member of the firm. Any disruption of business continuity can be difficult but having to deal with Accounting Professional Liability claims and the possibility of losing valued accounts is not good a good recipe for future success.
Professional Liability Policies offer an “Extended Reporting Period” option (often referred to as Tail Coverage), which protects the professional services provided back to a policy’s Prior Acts (or Retroactive) date of coverage. Before leaving a partnership, dissolving a business entity, or in the case of retirement, death or disability, one should consult their insurance advisor to review available Extended Reporting Period options to protect their Prior Acts coverage and potential labilities.
Disclosure: The information presented is intended to provide guidance and is not intended as a legal interpretation of any federal, state or local laws, rules, or regulations applicable to your business. The risk management information provided is intended only to assist policyholders with recognizing possible exposures. In providing such information, Great American does not warrant that all potential exposures have been evaluated or can be controlled. It is not intended as an offer to write insurance for such exposures. The liability of Great American Insurance Group and its affiliated insurers (“Great American”) is limited to the terms, limits and conditions of the insurance policies underwritten by any of them. Scenarios are provided to illustrate possible exposures faced by your business. The facts of any situation which may actually arise, and the terms, conditions, exclusions, and limitations in any policy in effect at that time, are unique. Thus, no representation is made that any specific insurance coverage applies to the above claims scenarios.
Richard Monahan is a member of the Professional Liability Division at The Great American Insurance Group in Exton, PA.
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