Controlling The Moral Hazard Created By Limiting Liability

Abstract

Accounting firms may choose to organize either as Limited Liability Companies (LLC) or as Limited Liability Partnerships (LLP) to eliminate joint and several liability for their partners. However, before firms consider adopting either new entity form to limit tortuous liability, the moral hazard problem associated with these entity choices should be evaluated. This article examines the issue of accountant liability and offers suggestions to reduce moral hazard while still protecting the accountant from personal liability.