Academic journal article Journal of Accountancy

Legislating Liability Reform

Academic journal article Journal of Accountancy

Legislating Liability Reform

Article excerpt

Much has been written about the legal liability threat to the profession, CPAs' liability reform goals and the broad arguments in their support. This article addresses the issue from a different perspective--that of the legislative committee representing the nation's 50 state CPA society executive directors and a society staff aide, who are all deeply engaged in the liability reform battle.

Our purpose is to clarify the nature of the legislative battle we face and the preparations necessary to make a successful case before elected officials and the profession's regulators. Legal liability reform is among the most complex challenges in the profession's history. Reaching our goals will require a major commitment to legislative, public relations, member education and other activities, carried on jointly by the American Institute of CPAs, state societies, firms of all sizes and, most important, CPAs at the grass-roots level.

CRAFTING THE RIGHT ARGUMENTS

It is vital for the profession to educate legislators, the media and others who influence public policy and opinion about the liability environment, the need for reform and its benefits for the public. However, those on the profession's front lines face a special challenge to remain objective in the wake of the liability crisis that is having such a critical impact on the profession. Legislators and other public policy makers will have a far more detached perspective. While we must clearly address the high cost of liability to ourselves, we also must develop solutions they perceive as reasonable, especially in the face of major opposition from a politically strong and well-funded coalition of liability reform opponents.

The AICPA and the state societies are highly regarded in Washington and the state capitals. The profession has long served as a technical resource to legislators and has earned great credibility by proposing legislation that both meets our goals and is viewed as positive or neutral from a public interest standpoint. As a resuit, we have a strong and enviable record of legislative success. We now must build on our credibility by defining the major harm that liability is having on CPAs in a context that also highlights the negative consequences for the public.

CPAs are recognized as having a special public responsibility. Liability reform arguments that emphasize economic harm to CPAs likely will be perceived as parochial and self-serving. Regardless of liability's economic impact on CPAs, we must remember policy makers and opinion leaders see CPAs as prosperous professionals who fare far better economically than the average American--and generally better than the policy makers themselves.

DEVELOPING LEGISLATIVE GOALS

A key to our success, then, lies in developing solutions that both reduce the profession's liability burden and appear reasonable to policy makers and the public. Legislators will not pass radical reforms that are perceived as eroding important individual rights. Submitting unreasonable initial proposals has been a major impediment to supporters of many types of legislation, including those seeking federal product liability reform, which has many parallels to the changes we seek.

In the early 1980s, product liability reform proponents offered initial legislation that was perceived as draconian in curtailing individuals' access to the courts. While their latest version is far more achievable from a public policy viewpoint, opponents claim the original bill is the manufacturers' true agenda and say the new version is merely the first step in achieving it. For us to avoid the same accusations, it is important that we develop and offer realistic and workable liability reform goals from the outset.

CPAs may have a unique advantage in developing achievable goals. While most defendants are sued for directly causing a loss, CPAs are sued for failing to find and disclose losses caused by others. …

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