CPAs do not review contracts or practice law, but if they fail to pose common sense legal questions to their business clients, those clients may overlook vital steps that are essential to the safety and success of their businesses. CPA firms are always looking for ways to deepen their relationship with business clients and to add value to their compliance services; growing a business client into a client that also consults with the practice is a win-win. The catalyst for that transition may require little more than inquiries about different aspects of the business, estate plan, and so forth. If the issues identified require the expertise of an attorney, business liability insurance consultant, or other specialist, the CPA can make the recommendations or perhaps even the referral.

CPAs who worry that this is outside their purview should reconsider. Practitioners who have done accounting and tax compliance for a business owner for decades may be the key—and are often the only—professional advisor in regular contact with the client and business. They may know more about the operations of the business than the client’s attorneys, who are only called to address specific issues and typically in an emergency. Having a conversation is a great way to identify issues.

Customer Contracts Are Often Overlooked

Many businesses that deal with the public have agreements of some sort with their customers. This might be as simple as the printed information on the back of a claim check or receipt from a dry cleaner to contracts used by a machine tool shop building specialty equipment for its customers. The content of these agreements is too often overlooked from a financial and business planning standpoint. The list of questions below makes it very clear why having proper contracts in place can be vital to the success of a business.

Questions to Ask

There are several basic questions that CPAs can, without practicing law and without exceeding their comfort zone, ask business clients. Remember, the key is creating awareness of issues, not exceeding the scope of the CPA’s expertise.

  • “When was the last time you had all your business contracts or documentation reviewed by a business/corporate attorney?” CPAs should not be surprised to receive a puzzled look in response, as many business owners may not even realize that the backs of their receipts are actually contracts. If the response is one of uncertainty, which is often the case, a review is likely long past due.
  • “Where did you get the business agreements you use?” If the business owner has no idea, admits to copying something off the Internet, or is still using forms inherited from a previous owner, review by counsel is critical.
  • “Do the agreements contain ‘hold harmless’ or indemnification language?” Limiting liability with the business’s customers is a no-brainer. If the answer is “no,” tell the client to have a lawyer draft such language into the agreement immediately.
  • “Do you have a mandatory arbitration provision?” Lawsuits can be costly and expensive; in some cases, using arbitration can save both time and money, which means in the event of a dispute the owner can focus more on running the business. If arbitration is not in the agreements and consented to by the customer, it may not be available. This is a conversation every business dealing with consumers should have with a corporate attorney.
  • “Does the customer have the correct insurance protection?” Many business owners think of insurance only in terms of what they have, but the insurance their customers have is also critical to everyone’s protection. The agreement with the customer should have the customer represent that it has adequate coverage (what that means will vary greatly depending on the business).
  • “Does the customer have the right expectations?” Contracts are not only about legalities, but also about defining what the business will provide the customer, when, and how. These provisions, while they should be reviewed by counsel, may be reasonable for a CPA who has represented a business owner client for many years to discuss in a nonlegal manner with the client. The goal is that the agreement set forth in understandable language what the customer will receive.

Several of these points are explained in more detail below.

Liability and “Hold Harmless”

A typical “hold harmless and indemnify” clause will state that the service or product provider will not be responsible for liabilities that could normally arise unless the company has been grossly negligent or engaged in willful misconduct. Most customers have no problem with this type of provision, which makes it much more difficult for them to sue. State law may require that such provisions be in a separate agreement, that there be a discussion of the provision, or that the customer initial next to the provision.


Requiring arbitration may also be advisable, as arbitrators are normally much less sympathetic and naïve than a jury can be. Someone filing for arbitration will typically have to pay $10,000 or more as a filing fee, plus an hourly fee for the arbitrator. In the standard court system, there is a risk of getting a poor judge; with arbitration, both sides receive a list of arbitrators to elect or strike, which normally leads to getting a good arbitrator or arbitrators. Make sure that the client’s lawyers and insurance carrier agree that arbitration is the best forum for when a customer might sue, or limit the circumstances as to when it will be required.

Customer Insurance

A business should also be concerned with its customers’ insurance coverage. Anyone who sues the customer is also going to sue the business that does work for the customer that is related to the case. Make sure that the contract specifies that the customer has informed the business that it has the proper coverage, and confirm that information. If the customer does not have the necessary insurance, language in the contract specifying that such lack is a violation of the agreement will protect the business.


The contract can also outline expectations. Eighty percent of problems come from 20% of sources, so it is important to identify customers who may be a problem. One way to identify them is to make sure that the contract requires them to affirm what they are supposed to do and what they must forgive if something does not go as expected. This is a good precaution; if a customer sees the provisions and objects vehemently, it might not be worth doing business with. Sometimes salespeople can be overzealous, so requiring them to cover contractual disclosures and provisions in the sales process can help ensure that customers are well informed and not misled.

Outlining terms and expectations at the outset is ubiquitous in the business world, but the practice does not receive enough attention from many CPAs and clients. If something goes wrong, the client will want to be able to pull the agreement out of the customer’s file and ensure that it did everything possible to protect the business. Today’s business environment is more litigious than even 15 years ago. Businesses should consult with their financial and legal teams to ensure that the right bases are covered.

Ask, Don’t Assume

CPAs are often the first and only professional advisor many small or closely held business owners meet with. Broadening client discussions to a wide range of business-related topics, such as the issue of customer contracts discussed herein, can add value to the relationship and help clients identify issues they would otherwise ignore.

Alan Gassman, JD, LLM is a partner at Gassman Crotty & Denicolo PA, Clearwater, Fla.
Martin M. Shenkman, JD, CPA/PFS, AEP is an attorney at Shenkman Law in Fort Lee, N.J.