Under tort law, an accountant is expected to exercise the same level of skill, care, and diligence as would your colleagues under similar circumstances. Even when exercising due care, mistakes can and do happen. Hence the need for accountants professional liability insurance, also known as professional liability insurance, or errors & omissions coverage. This professional coverage is critical for your firm since general liability policies do not respond to financial losses.
Learn Your Risks by Studying Industry Data
One of the most effective ways of reducing claims exposure is by implementing a proactive risk management program based on studying industry claims data. Per the Journal of Accountancy (based on data supplied to them by the AICPA), most nonpublic audit claims presented during the period of 2011-2015 arose from the following areas:
- Technical standards violations (e.g., improper inventory valuation)
- Failure to detect defalcations
- Failure to include appropriate disclosure on the face of financial notes or in the footnotes
Understand the Businesses You Are Servicing
Lack of relevant experience in the client’s industry is another leading cause for claims. The financial services area is particularly hazardous in this regard. To reduce exposure, decline any engagements that you feel your firm is not qualified to handle.
Your insurance agency can help you obtain accountants professional liability insurance designed to meet your needs, and recommend loss control procedures to minimize claims.