Risks, Exposures, and the Need for Accountants Professional Liability Coverage
Accountants play a big role in the financial health of their clients. It’s a huge responsibility, and most accountants, CPAs, tax preparers, and other accounting professionals carry some form of accountants professional liability insurance because, even small accounting mistakes can result in costly problems for a client. And the reality is that dissatisfied clients sometimes turn to a judge in order to recover damages. If an accountant should ever find his or herself on the receiving end of a lawsuit, their legal costs could increase exponentially.
There are some very real risks of a malpractice suit, or claims made against the insureds by reason of a negligent act, error, or omission in the performance of professional accounting services and that is the reason why every accountant needs professional liability insurance, which covers an accounting business if one of their clients should bring allegations that the work performed for them caused them a financial loss in any way.
Examples of situations where errors could result in litigation
For example, an accountant audits the financial statements of a client but fails to recognize that there are irregularities associated with employee embezzlement during the audit process, or because they are overburdened with work during tax season and they fail to file a client’s return on time, that client could hold them responsible for any damages they may suffer.
Simply by making a technical error in their calculations or failing to include certain pertinent information in a client’s tax return, they could be sued. When a lawsuit is filed, even if the accountant feels that they are not at fault, they’re still going to spend time and money defending themselves against those charges, or may end up trying to settle the charges out of court.
There have been instances when an accounting firm was acting as a trustee on a client’s behalf and failed to include vital documents, resulting in penalties and interest charges, or a client may hire an accountant to set-up investment properties and the accountant registers them as a corporation instead of a partnership, creating additional tax liabilities, at which time the client could be inclined to seek litigation to recover any damages.
The risks and exposures are vast to those in the business of tax preparation and accountants professional liability coverage is one way to deal with dissatisfied clients. Speak to an agent about any questions or concerns.