A Valuable Asset for Accountants
From late nights during tax season to early morning client meetings, you’ve worked hard to nurture and grow your accounting firm into a successful enterprise. But, what would happen if a simple mistake or a frivolous lawsuit caused you to have to defend everything you’ve built?
Losing thousands of dollars in attorney’s fees and court costs is troublesome for even the most successful organizations, let alone small single employee organizations. That’s where having professional liability insurance becomes incredibly important. Here is what you need to know.Contact Us
What is Professional Liability Insurance for Accountants?
Professional liability coverage is essential to appropriately manage the risk that comes with running an accounting practice. There are so many unforeseen and unanticipated events that can occur and it’s virtually impossible to have a specific backup plan for every one of them.
Why Professional Liability Insurance is so Important
What if you or a trusted staff member makes an error on a financial statement that causes great harm to your client? What if you fail to detect serious embezzlement or make a major mistake on a tax preparation form? What if circumstances outside of your control lead to a situation where a lawsuit is filed against you? How would you react or even be able to afford an attorney?
Many small practitioners choose to forego this type of coverage. But, they do so at their peril. Those who have proper coverage may rest assured knowing their legal fees and other costs are possibly covered by their policy.
What Does Professional Liability Insurance Cover?
In general, liability insurance is designed to protect against any act that may harm another party or cause damage to their personal property. However, policies designed for specific industries—such as legal or financial—go a step further.
Accountants professional liability insurance policies protect against several different types of claims. Some of the most common errors covered by an Accountant’s Professional Liability policy are as follows:
- ERRORS IN FINANCIAL STATEMENTS
- ERRORS IN AUDITING ACTIVITIES
- NEGLIGENT TAX FILINGS OR TAX PREPARATION
- FAILURE TO DETECT EMBEZZLEMENT
- POOR MANAGEMENT ADVISORY SERVICES
- POOR FINANCIAL ADVISE THAT LEADS TO GREAT FISCAL LOSS
Are You Paying Too Much for Malpractice Insurance?
Generally speaking, professional liability insurance is not required by law for accountants. However, many in this industry fail to recognize that professional liability insurance is critical to managing risk and protecting their business—a grievous error that leaves them open to the potential of catastrophic financial loss and maybe even having to close their doors.
There is a common misconception that solo accountants and small accounting firms who prepare business and personal tax returns, bookkeeping, and compile financial statements simply have no need for professional liability insurance. But, around 70% of claims against CPAs are tax-related or come from performing bookkeeping and compilation/review functions for clients. No matter what your firm does, it is important to realize that claims can arise from any client or situation, and they often come suddenly and unexpectedly.
What Situations Would Require Using Professional Liability Coverage as an Accountant?
- In the case of small accounting firms, many partners and solo practitioners feel a sense of security, doing the same type of work for the same clients each year. They often wonder why they should care about losing personal assets or having to pay expensive lawyer fees. And for many freelance or solo accountants, they feel that purchasing a professional liability policy is a waste of time and fiscal resources.
- However, the truth is that even if you have a good practice, a steady group of clients, and practice in a relatively safe area of expertise, your firm is not exempt from a malpractice claim. Claim-triggering factors can be endless, and there is no reason to put your personal assets and your business at risk.
- In the event of a lawsuit, attorney’s fees and expenses could cost over $100,000 just to get the accountant dismissed from a frivolous suit. Without professional liability insurance, these costs come out of the accountant’s pocket. In just a few days, the CPA could incur far greater financial losses than the relatively low cost of a professional liability premium.
- While the cost of purchasing a professional liability policy for your accounting firm is not cheap, it is still less expensive than having to deal with a pricey claim on your own. Attorney’s fees, court costs, and the expense of settling the claim usually exceed the annual premium price multiple times over. Contact us today to learn more about your options and how we can help you with all your business insurance needs.