On June 14, 2010, Bill Cheatham spoke to more than 100 CPAs at the Construction Industry CPAS/Consultants Association (CICPAC) annual meeting about the risks created by the current construction market. Bill focused on dangers to unsuspecting CPAs that provide financial audits of construction companies. Sureties will likely encounter more construction losses in the coming years and may seek to recover from CPAs that provided allegedly negligent audits that resulted in the extension of bonding capacity.
Bill first described the current economic cycle and reiterated predictions that the commercial construction industry will not recover until 2012. While contractors have been suffering through an economic downturn since 2009, sureties historically do not incur losses until after an economic recovery begins. Bill anticipates that sureties will, for the first time in years, incur increased losses in 2010.
When the sureties suffer these losses, they will be unable to recover damages from bankrupt contractors. Bill described a scenario where sureties will then attempt to “salvage” recovery from third-parties, including CPAs. Bill provided a specific case study to illustrate how a CPA can be held liable to a surety because of negligent auditing practices. In these scenarios, sureties will argue that the CPA is liable because the surety relied upon the audit in its decision to extend bonding credit.
Contact Bill if you would like to discuss further risks to CPAs in the current economic cycle.
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