Ever wonder if you’re on the hook if your accountant screws up?
The short answer is no — the accountant’s errors are the accountant’s problem. Any judge in an audit will recognize who was at fault and won’t hold you, the client, liable for a professional’s mistake.
At the same time, ultimately any errors effect you, so it’s essential you have a good understanding of what you’re signing off on.
It’s kind of like a doctor — no one’s going to blame you for anything they do wrong during surgery, but any medical complications are sure as heck going to have a serious impact on your life.
So, never blindly trust your accountant.
Instead, find a professional that can explain complex terms to you in layperson’s terms. Make sure they walk you through everything they’re doing and then, make sure you review it.
The onus is on you to be aware of what’s happening to your money and your taxes and if something seems off or makes you uncomfortable bring it up, or get an opinion from another accountant.
If you got a treatment plan from a doctor which included taking medicine with potentially severe side effects you hopefully wouldn’t nod your head agreeing to take it without first asking a ton of questions, reading the leaflet, and staying up until 2 am Googling it. You’d first find out the balance of risks and then make an informed decision if it was in your best interest. The same applies to any financial or tax plan if you want to get the best results.
That being said, most accountants operate in good faith. If we’ve made an error, for example, or messed up somewhere along the lines, we feel that’s on us, even if technically the client okay’d it.
Let’s say there was an error on a return that caused a $10,00 tax liability, plus interest and penalties. The $10,000 tax liability can’t be helped because that would have been there in the first place, but we would extend ourselves for the additional costs as a gesture of goodwill.
But for peace of mind, our clients can sign up for something called an “Audit Shield” which is like insurance. It protects our clients from any mistakes and we’ll represent you in an audit for free. It would normally take about 15 to 30 hours of our time to prepare for a personal tax audit or around $3000 at our regular rate. So for around $500 our clients can feel confident they’re covered.
So the long answer is that you’re not ultimately culpable for any accountant’s error, but it can still cause you aggravation, time and money to fix.
The best solution is preventative — to first find an accountant you can trust, that you can develop a good relationship with and that can explain what they’re doing until you have total clarity. The second is to review everything before you sign off on it— ask questions until you 100% get your head around the tax strategies your accountant is using.
It’s a shared responsibility.