There are so many changes that are made in accounting, auditing, tax and consulting standards that the overlooking of how disputes are solved is a very real possibility. This is why users and providers of these services should be familiar with the benefits and disadvantages of the various different Alternative Dispute Resolution (ADR) Services. We will, therefore, suggest that ADR clauses be used in the engagement of services contracts.
CPAs have to consider the wording of any ADR clause approved by a professional liability insurer and legal counsel. These days, most professional liability insurers advocate for the use of non-binding forms of dispute resolution and some may even require this in order to reap the benefits of insurance.
The most common ADR methods available are mediation and arbitration. These are also governed by the AAA’s Accounting and Related Services Arbitration Rules and Mediation Procedures. The process is fair and impartial. To ensure that the ADR clause does not affect a CPA’s independence, the wording must be drafted carefully and in line with the AICPA Code of Professional Conduct Rule in Section 1.228. This gives a generic guide on the use of dispute resolution forums and liability limitation clauses. The inclusion of such clauses does not absolve liability of being unable to meet professional standards. CPA’s may also need to be required to report a judgment in excess of $25,000 whether granted in court or arbitration. This amount varies from jurisdiction to jurisdiction. For that reason, knowledge of the rules is important.
The first step in the settlement of a dispute must always include negotiation. Parties must make an effort to resolve in the best and least expensive way possible. Sometimes, ego can come into play and undermine the process. However, if parties are able to manage their emotions, it will be the most economic outcome, utilizing less time and money. Negotiations can never take place in bad faith. If so, involve an attorney that can carefully oversee and draft the proper terms. They can also intervene on your behalf. Continue reading