Retired partners: A liability risk?

By J. Michael Reese, J.D., LL.M. for Journal of Accountancy

Imagine that today is the last day before one of your firm’s partners heads off into retirement. In this moment, it seems incomprehensible that this CPA, who has been essential to the firm for many years, won’t have some role going forward. But what is that role? If not properly managed, how might that role undermine the firm’s future?

What do you do when several of the firm’s clients still call and ask for this person by first name or meet them for lunch? What’s your response when it comes out that the client entered into a transaction you advised against, and their response is, “[Former partner] said it was OK.”?

The professional liability risks posed by retired partners are real and require planning and diplomacy. Unless the retiree has truly unplugged the ten-key for good, the firm may have to grapple with clients who still seek out that person for advice and, quite possibly, a bored individual who still has a strong desire to help both clients and staff. To help address this risk, CPAs need to understand a theory of liability known as apparent authority.

Read the complete article at Journal of Accountancy