No one’s perfect. We’ve all heard the phrase. Inevitably, mistakes do happen and Professional Liability Coverage is the bungee cord that stops you and your firm from a free fall.
Errors and Omissions (E&O for short) and other Professional Liability Insurance policies cover professionals from all areas of business, including but not limited to: Advertising Agencies, Property Managers, Mortgage Bankers, and of course, Accountants.
Professional liability policies protect against several different types of claims. Some of the most common errors covered by a 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
Many small businesses fall into the trap of complacency. We categorize complacency as a “trap” because it is often the product of sustained success that causes a business to feel secure and set in their ways.
In the case of small CPA 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 ask: “Why should I care about losing my personal assets?" Even if you have a good practice, a steady group of clients, and practice in a relatively safe area of practice, your firm is not exempt from a malpractice claim.
There is a common misconception that small accounting firms who prepare business and personal tax returns, bookkeeping, and compile financial statements simply have no need for professional liability insurance. We estimate that: 50% of claims against CPAs are tax-related 10% of claims against CPAs come from performing bookkeeping functions for clients, and 10% of claims against CPAs come from compilation and review. 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.
Even with this information, you may consider your firm exempt from a professional liability claim. Some of your clients may be some of your best, long term friends. You may know your clients, but you don't know everything surrounding their respective businesses. You do not know, nor is it possible to know their employees that may be stealing from them, or the character of the bankers that may be lending them money. The list goes on and the claim-triggering factors can be endless, even if you have only one client. These are just some of the reasons that are putting your personal assets and your practice at risk.
Many Accountants believe that purchasing any type of Professional Liability Coverage makes them an easy target for lawsuits. The truth, though, is that a determined client or savvy attorney can sue you regardless of your professional liability coverage status. A policy can protect you from losing assets, paying high court fees, and potentially losing your business.