The current liability crisis in the accounting industry is making recruiting difficult.

"A lot of qualified young people are afraid to get into this business," says Arthur Bowman of Bowman's Accounting Report.

"They are not sure what future it has for them," he says. "I see a lot of qualified professionals leaving the business for the same reason."

The liability issue has cut into "our ability to attract the same quality people that we were able to attract several years ago," says Jon Madonna, chairman and chief executive of KPMG Peat Marwick.

"The student in school today is saying `Do I want to major in accounting? Do I want to join a big firm? Why do I want to invest my time in a profession that has all of that litigation?" he says.

Because accounting firms are set up as partnerships, all liabilities flow to individual partners and any adverse judgment comes right out of the partners' paychecks.

"If you are a partner in a large firm in Boston, your personal assets and everything you've accumulated are at risk if a partner in Denver makes a mistake," says John Hunnicutt of the American Institute of Certified Public Accountants (AICPA).

Proposals to allow accountants to form "limited liability companies," a hybrid of corporations and partnerships, have been approved by 17 state legislatures.

The AICPA is continuing to lobby to promote similar legislation in other states.

"There isn't anybody in the profession who doesn't believe that when a mistake is made, there shouldn't be appropriate compensation and that the firms should have to pay," says Lawrence Weinbach, chairman of Arthur Andersen & Co.

But the impact of the liability crisis is being felt on partners' pocketbooks at all of the major firms.

Coopers & Lybrand, the fifth-largest United States accounting firm, reported that despite an increase in revenue of 6.3 percent in 1992, distributions to partners dropped due to a 10-percent jump in the reserve needed to cover costs associated with litigation.

of 5 stories this month > Get unlimited stories
You've read 5 of 5 free stories

Only $1 for your first month.

Get unlimited Monitor journalism.