Accountants provide for the financial health of their clients and that is a big responsibility. Because of the risks involved, most accountants, CPAs, and tax preparers carry some form of Accountant Liability insurance, because even a small accounting error can result in costly problems. It takes just one dissatisfied client to turn to a judge in order to recover damages. As an accountant, if you should ever find yourself on the receiving end of a lawsuit, your legal costs could be significant.
You are always exposed to the possibility of a malpractice suit, or claims stating a negligent act, error, or omission occurred in the performance of professional accounting services. This is why every accountant needs professional liability insurance that covers an accounting firm if one of your clients should bring allegations that the work performed for them caused them a financial loss.
Situations where errors could result in litigation
Making a technical error in your calculations or failing to include certain pertinent information in a client’s tax return could result in your being sued. Or, let’s say that you were to audit the financial statements of a client but failed to recognize that there are irregularities due to an employee committing embezzlement during the audit process.
When a lawsuit is filed, even if, as the accountant, you feel that you were not at fault, you’re still going to wind up spending time and money defending yourself against charges. At best, you may end up settling the dispute out of court. A mistake could occur simply because you’re overburdened with work during tax season and failed to file a client’s return on time. That client could hold you responsible for any damages that they may suffer.
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 accidentally registers them as a corporation, instead of a partnership, which ends up creating additional tax liabilities. 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 Accountant Liability coverage is one way to deal with clients who feel they were wronged in some way. Speak to an agent about any questions or concerns you may have.