As an accountant, your career is largely based on the financial gains of your clients. This also means that if you make a mistake that costs your clients money, it may end up costing you as well. Even if you don’t make any mistakes, and maintain all necessary quality controls, your clients could still decide to sue you for wrongdoing.
Mid-sized and large CPA firms have a keen understanding of the need for malpractice insurance. Unfortunately, some accountants and
This article provides an overview of Professional Liability insurance and explains why failing to purchase it puts you and your firm at risk.
Errors and Omissions insurance explained
Errors and Omissions (E&O) insurance is a type of Professional Liability insurance commonly purchased by skilled professionals in a variety of industries. As an accountant, it protects you against claims of incompetence or insufficient work.
In other words, Errors and Omissions insurance protects you if one of your clients claims that a mistake you made cost them money. Errors and omissions insurance typically
Errors and Omissions insurance varies depending on the needs of the individual or company being insured. The deductible and liability limits
Why do accountants need Professional Liability insurance?
As an accountant, you need Professional Liability insurance because — at some point in your career — you likely face an issue that can bring about a claim. Even the best financial advice doesn’t always play out the way we think. When a client depends on your services, they may blame you if things don’t work out in their favor.
Even if you make an unintentional mistake, your client may decide to sue you when they feel upset from the consequences. For this reason, the American Institute of CPAs (AICPA) recommends that all accountants purchase Professional Liability insurance.
Unfortunately, even if your work is impeccable and error-free, your client may still choose to take legal action against you in an attempt to attack any deep pockets, especially “trusted advisor” CPA firms with deep pockets. This is also true in cases of a well-covered fraud, or a very complex tax issue. Even if the courts ultimately rule in your favor, the legal costs could be devastating. The best way to transfer risk from yourself in this scenario is by purchasing Professional Liability insurance.
What does CPA Malpractice insurance cover?
As an accountant, CPA malpractice insurance protects your accounting firm if you’re sued over an alleged or actual professional error. For instance, if you give your client financial advice and they end up losing money and decide to sue you, your CPA malpractice insurance covers the associated legal costs. Considering the multidisciplinary nature of a CPA firm, a well-written CPA firm policy provides some of the broadest coverage available for any type of professional. Effectively it covers you for “anything you do for a fee” (written this way to cover trustee work and pro bono), in comparison with inferior policies that only cover services as an accountant.
In the event of a lawsuit, your Professional Liability insurance covers the following expenses:
- Legal fees and court costs
- Administrative expenses
- Any settlements or court judgments
E&O insurance for accountants examples
- An accounting firm that audits dozens of Jewish charities is now facing legal claims that its negligence led directly to the spectacular collapse of the Jewish social service agency
- The world’s biggest professional services firm by annual revenues, PWC had been accused of failing to catch a multibillion-dollar conspiracy between executives at Taylor, Bean & Whitaker, a defunct mortgage lender, and counterparts at Colonial Bank, an Alabama-based lender that supplied TBW with loans.
- Rihanna claims her former accountant recommended bad decisions that caused her to squander a fortune and left her “effectively bankrupt” by the end of 2009.
What does Professional Liability insurance for accountants cost?
The price of Professional Liability insurance depends largely on what your limits are and the business you are buying coverage for. Your policy will be more expensive if your risk profile is higher.
Some common factors that can affect the price of your Professional Liability insurance policy are the size and location of your accounting firm and any previous lawsuits or documented disputes with clients. At
Ultimately, working with an insurance provider to assess your risks and help you weigh the pros and cons of different providers is the best way to find a policy that’s affordable and meets the needs of your accounting firm.
Professional Liability insurance for accountants - conclusion
Even if you’ve done nothing wrong, a lawsuit could take a wreak serious havoc on your accounting firm. Legal fees and court costs add up quickly and can jeopardize the financial security of your practice. Not to mention, an ongoing court case can disrupt client work and revenue flow.
As an accountant, the best way to protect your firm is by purchasing Professional Liability insurance. A broker can evaluate the needs of your firm and recommend the policies that protect your business.
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