8 Professional Liability Pain Points for CPAs
For some, accounting may seem like a steady, predictable industry. However, smart CPAs know that there is a constant evolution of risks and changes occurring throughout the field. From information security to new laws and policies, it’s important to stay on top of the trends in order to stay on top of the game. If you don’t, you may be held accountable for professional liability claims.
You may think it can’t happen to you, but many accountants face costly legal claims without the protection of professional liability insurance. Don’t put yourself at risk! Be sure to invest in comprehensive insurance coverage and stay informed on the current areas of risk for today’s accounting professional.
Information can be stolen from your firm through hacking, unauthorized employee access, and lost or stolen devices. As a CPA, it’s your responsibility to protect your clients’ sensitive financial information. Using highly encrypted cloud storage services is one excellent way to do this.
Prior to the 2008 market crash, large regional CPA firms were accustomed to annual growth. But when the recession hit, mergers and acquisitions became the new norm. A merger can be a very high exposure event for any business. Try as they might, businesses don’t always get the full financial picture of the company with which they merge or acquire. Always make sure that your professional liability policy provides thorough merger and acquisition coverage.
Because CPAs are often hired as auditors for their clients, they could face claims if they fail to catch bookkeeping inconsistencies that indicate possible employee theft or other fraudulent activity. Insurance professionals recommend that all CPA firms regularly assess their quality control, risk management procedures, and correlating insurance in these areas to see where there might be a potential for exposure.
A letter of engagement outlines a CPA’s scope of work for a client. It is the first line of defense against professional liability claims because it specifically delineates the CPA’s and client’s duties and obligations to one another during their contracted work period. It is critical that CPAs create an engagement letter for each client and project, no matter how friendly or informal a client relationship may be.
Now that Baby Boomers are headed into retirement, they will begin transferring an estimated $30 trillion—yes, trillion—to their families over the next decade. Accounting professionals will be tasked with advising their Boomer clients on how to best transfer wealth while limiting their tax liability and extraneous costs as much as possible. With so much money at stake, it’s easy to see why CPAs need to protect themselves against wealth transfer claims with a comprehensive professional liability policy.
Affordable Care Act
2014 was the first year that the Affordable Care Act (ACA) required all people to have insurance or face fines and penalties, as determined by the information filed in their federal income tax return. Since the ACA is so new, many individuals are still confused over what fines they have to pay and why. They expect their accountants to take care of this for them. CPAs who incorrectly file a client’s return, which results in penalties and fines for the client, risk having a claim filed against them.
Partnerships can be a common exposure event for CPAs, and the accounting field has seen a recent increase in such claims. This occurs when an accounting firm is providing services to a business partnership, and has to do with issues such as partnerships dissolving or seeking additional financing. In some claim instances, one partner may allege that the accountant is giving favorable treatment to another partner.
Protect Your Accounting Business with Professional Liability Insurance
Professional liability insurance is a must for any accounting professional. It doesn’t matter if you’ve known your clients for years, if you follow the law to a “T,” or if you think you only do low-risk work. None of this guarantees a client won’t sue you for something that they feel was done wrong.
Many small business owners have no professional liability coverage at all because they erroneously believe they cannot afford coverage, or that they don’t need it. But not having professional liability insurance can be lethal to your small business and personal assets if a claim is filed against you.
Fortunately, it’s easy for CPAs to get dependable liability coverage to protect their business, careers, and livelihoods. Get an estimate with just a few clicks to find an affordable policy that’s tailored to your specific needs.