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Emerging Professional Liability Risks in the Accounting Industry


Emerging Professional Liability Risks in the Accounting Industry A Look at E&O Risks with High-Profile Clients; Cyber Security Issues

According to the U.S. Bureau of Labor Statistics, in 2013, there were 1.17 million accountants and auditors and 1.59 million bookkeeping, accounting and auditing clerks employed in the United States. These numbers are expected to rise with forecasts pegged at 3.44 million in the accounting field by 2022. Revenue from accounting, tax preparation and payroll services industry in the U.S. is also expected to climb from approximately $137 billion in 2013 to about $160 billion by 2018. That’s good news for the industry. But with more entering the accounting field, it’s important that along with reaping the rewards from this career path that individuals are also aware of their professional liability exposures, including emerging risks.

Some accountant professional liability risks can arise as a result of an inherent defect in the professional work performed, such as incorrectly inputting information and failing to review tax returns prior to filing. Other risks are due to misunderstandings regarding the scope of the work that has been agreed or responsibility for matters relevant to that work or parts of it. In addition there are emerging trends such as those that come with working with high-profile clients and cyber exposures due to the highly sensitive customer information accountants receive and store.

While high-profile and high-wealth clients are generally an attractive market segment for accountants, they can potentially cause higher exposures. Why? These individuals themselves simply have a higher exposure, which makes them the targets of more frequent lawsuits and in turn they look to see who may be responsible for any anomalies. Additionally, wealthy individuals typically have a number of individuals who manage their personal and professional affairs. This can include everything from contract negotiation, legal issues, bookkeeping, cash flow management, investing, bill paying, account reconciliation and more. Many times these responsibilities overlap. The personal access and distribution of responsibilities creates the potential for embezzlement. The result may be the accountant being drawn into suits alleging his or her failure to identify the exposure and taking steps to stop the embezzlement. Even though the accountant was not involved in the misappropriation of funds, he/she becomes a target for recovery.

Another area of emerging risk involves cyber security. Because of the inherent work they perform, accountants possess a great deal of personally identifiable information or business sensitive information. This information if not adequately protected can land in the wrong hands, compromising the financial security of an accountant’s clients. Without the right insurance coverage, a firm can find itself dealing with the substantial costs involved with a data breach, along with reputational damage.

Axis Insurance Services specializes in insuring accountants and the related industry segments for professional liability (errors and omissions) exposures in addition to cyber liability, directors & officers and employment practices. We can provide you with a comprehensive customized program to address each of your exposures. We will conduct an assessment of the services you perform and evaluate the type of clientele you serve to tailor your coverage, and review your risk management and best practices to minimize potential disputes and lawsuits. Give us a call at (877) 787-5258 to go over your insurance program.

 

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Blogged on: May 15, 2015 by Mike Smith
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