Accountants have liabilities not only to their clients but also to third parties who may rely on the information prepared by the accounting firm. According to a recent IRS’ annual report, over 85% of the returns audited contain errors or omissions. These can range from simple mistakes, like failing to check the QTIP election box, or more complicated issues, such as misinterpreting a provision of the tax code. The complexity of our tax laws can be a pitfall for accountants who may have made every effort to file a complete, accurate and honest return. Over half of all claims made against accounting firms arise out of tax services. And another 20% of claims result from compilation, review and bookkeeping work. It pays to be prepared to defend claims against your practice – even unfounded claims are time consuming and expensive.
Who should buy Accountants Professional Liability Insurance?
- Bookkeepers
- CPA Firms
- Enrolled Agents
- Financial Planners (special coverages are available)
- General Accounting Firms
- Public Accountants
- Sole Proprietors
- Tax Preparations Services
Claim Example
The client's long-time bookkeeper left the firm and a new bookkeeper was hired. The client asked the accountant to help train and supervise the new bookkeeper. During a one year period of compiling financial statements and re-organizing the records of the new bookkeeper, the client's financial position changed from an expected profit of $134,000 to an actual profit of $30,000. Additionally, it was determined that approximately $70,000 was owed in back taxes, interest and penalties. The accountant personally loaned the owner of the client company $90,000 which the accountant felt was adequate capital to bring the client back to profitability. The client company ultimately failed; the accountant obtained a judgment for re-payment of the notes. The client retaliated with a law suit alleging professional negligence.