Firms have found themselves in a more litigious environment, with companies willing to sue if their accountants fall short of their expectations, writes Penny Sukhraj

There is little doubt that capping auditor liability is going to massively reduce the chances of a Big Four firm - and any others - failing in the event of another corporate Enron-like collapse.

And with problems in long-standing areas of risk now taken care of, firms have begun to take advantage of the opportunities offered by the market to widen their services by including business advisory and corporate finance.

However, these areas of very lucrative growth have not come without an equally large amount of risk, says Patrick Strange.

Strange, an AON executive director responsible for the larger end of professional services business including accountants, says this is especially true as more clients look to their accountants to assume different roles.

'The consequence of this scenario is increased risk. The accounting profession is very competitive and has recently been engaged in several mergers. Firms are competing for limited business, even between smaller firms and the Big Four.

'There is this pressure to chase business, but the ability to absorb the business is dependent on the teams of people the firms recruit. The higher risk factor lies in their laying out investment in recruiting people who are not as good as they say they are,' says Strange.

But the level of competition in business extends beyond obtaining the best people in the field, into the ability to diversify and offer a range of services to meet business needs.

Strange says this adds another risk dynamic, especially as the new diversified services are not traditionally part of the accountant's remit.

'In order to be more successful - and this is not about low-balling - firms have to be diversified in the services they provide. However, the diversity of the client could also involve quite a high level of risk exposure. Diversity could be influenced by the geographic location in which the client operates. The firm has to determine whether it has the resources to deal with this.

'In the case of multi-nationals, the question that would arise is who the ultimate owner of the client is, what their aspirations are and, therefore, what expectations they have of the firm.

Roles that include basic auditing of stock and tangible goods have always been part of the accountant's responsibility, and still are across manufacturing industries.

But this role has also been affected in markets such as the UK, where businesses have less to do with tangible commodity and more to do with services and data.

'New risks have arisen from the way in which clients are devising their own business schemes. Instead of the traditional manufacturing industry, firms now have electronic data that has to be reviewed and advised upon. In a way, this places greater demands on the accountant in so far as their assessment role goes, as it comes with the risk of tampering, more so than tangible stock,' he says.

Tax will continue to be an area of high claim levels, with the more complex tax environment fuelled by an anti-avoidance regime. Strange says people are now more aggressive in their expectations of saving in tax. Even large corporations will go to the lengths of suing their accountants if they have missed a tax-saving deadline.

Managing director at Alexander Forbes, Mark Bracher, says that tax continues to be one of the areas in which the most claims are received 'because of the complexity of the tax system and the pressure that comes with keeping up to date with current and new tax legislation. Basic claims still emanate from areas in which returns are not sent in on time to those such as inappropriate tax planning advice, through to trusts,' he says.

Firms are also now asked to provide advice on industry-specific regulation.

And if this is not provided adequately, it could open up a potential floodgate of litigation.

'Firms themselves operate within a very heavy regulatory environment and need to ensure they keep themselves on top of these at all times,' says Strange.

'Clients, however, are turning to the firms more frequently, expecting them to address their industry-specific client needs.

'This could mean anything from complying with rules within a specific sector, to meeting regulatory requirements within a particular geographical region.

'We've seen few claims in business recovery and liquidator insolvency cases. I think claim trends will depend on the state of the economy and the kind of professional teams a company has on board,' says Strange.