Accounting firms consist of licensed professionals who prepare and review their clients’ financial records, determine related risks and opportunities, and offer possible solutions. These firms may specialize in certain types of accounting (e.g., government, management or public) or provide services spanning several categories. They can take on individuals and organizations as their clients and assist with a range of financial tasks. Accounting firms hire various professionals (e.g., tax associates, accountants, auditors, financial analysts, lawyers, office managers and administrators) to manage their operations and may perform their services from multiple locations, including their own office spaces and clients’ properties.
Common tasks among accounting firms include organizing, examining and maintaining clients’ financial documents (e.g., bank statements, invoices, receipts and tax returns); confirming these documents are accurate and comply with applicable legislation; calculating clients’ taxes owed, preparing their returns and making sure these taxes are paid on time; analyzing clients’ accounting books and systems to ensure efficient and acceptable procedures and detect potential fraud exposures; and reviewing clients’ financial operations in their entirety to identify any challenges and suggest best practices for boosting cost savings.
Accounting firms must consider several risks, including property concerns, staff-related issues and liability exposures. As such, it’s crucial that they secure proper insurance to protect their operations against possible losses. Keep reading for an outline of common exposures within the accounting industry and associated coverage considerations.
Common Exposures
Here’s a breakdown of key exposures accounting firms may face in their operations:
- Professional liability—Accounting professionals have a responsibility to act in the best interest of their clients. If these professionals make mistakes that result in financial harm or otherwise poor services for their clients—whether that entails providing incorrect financial advice, misrepresenting clients’ financial conditions or operations, breaching federal or state tax laws, or failing to correct errors in clients’ financial documents—they could be sued and held liable for the damage caused to other parties. The most common professional liability claims made against accounting professionals allege negligence, errors and omissions.
- General liability—If any third parties (e.g., clients, vendors or passersby) experience injuries or damage within accounting firms’ office spaces, these firms could be held liable for the related losses. For example, a guest may sue an accounting firm if they slip and fall when visiting the firm’s office space.
- Employment practices liability (EPL)—Accounting firms must provide their staff with a workplace free of discrimination and harassment. If these firms contribute to a hostile work environment by participating in or permitting discrimination and harassment, failing to investigate workplace complaints, or taking adverse employment actions (e.g., discipline, lack of promotion or unlawful termination) against staff, they could face costly legal action and potential penalties from federal and state employment agencies.
- Cyber—Many accounting firms rely on digital systems and advanced software to schedule appointments and maintain open communication with clients, automate complex financial calculations and tax processes, create online portals for client invoices and payments, and store sensitive financial documents. Amid growing digital threats, using such technology could make these firms more vulnerable to data breaches, ransomware incidents and other cyberattacks. Following such incidents, accounting firms could encounter prolonged service disruptions and incur costs related to notifying impacted individuals, recovering lost or damaged data and technology, handling associated legal ramifications and reputational losses, and implementing additional cybersecurity measures to prevent future incidents.
- Property—Although accounting firms may perform their services across several locations, they tend to primarily operate out of owned or leased office spaces. These spaces are often equipped with office furniture, stationery, computers, photocopiers, fax machines, printers, phones, calculators, file cabinets and sensitive financial records. Unexpected events—including fires, inclement weather, theft and vandalism—may result in this property being damaged, stolen or destroyed, leaving accounting firms with significant recovery expenses. These firms may also experience business interruptions (e.g., canceled or delayed services and temporary closures) amid the recovery process, compounding related losses.
- Auto—Accounting firms usually don’t have a fleet of vehicles. However, some accounting professionals may frequently utilize personal or rental vehicles for business purposes, namely when meeting clients off-site and attending industry classes and conventions. This creates serious hired and non-owned auto (HNOA) exposures. After all, it only takes a single accident on the road to cause major losses. Following collisions or other auto accidents involving their staff, accounting firms could incur substantial expenses and liabilities from vehicle repairs and bodily injuries.
- Inland marine—When accounting professionals travel between locations to perform their services, they may carry valuable business property with them, mainly important financial documents, laptops, calculators, advanced tax software and related materials. By doing so, these professionals could make such property vulnerable to inland marine risks. Specifically, this property could get stolen or damaged by unanticipated events while in transit, potentially posing considerable recovery costs.
- Occupational safety—Common occupational ailments in the accounting sector include musculoskeletal disorders due to repetitive tasks, slips and falls stemming from hazardous walking surfaces, digital eye strain caused by frequent use of computers and other screen technology, and bodily trauma resulting from vehicle-related accidents. Accounting professionals may also be more prone to stress-related health issues due to their heavy workloads. If their staff get injured or become ill on the job, accounting firms could incur sizeable workers’ compensation expenses and face possible OSHA penalties.
- Crime—Because accounting firms often have access to large amounts of money and keep valuable documents and materials on-site, they may face elevated crime exposures, particularly theft and vandalism. These crimes could stem from both external and internal threats. For instance, perpetrators could be passersby engaging in a crime of opportunity, or they could be staff seeking to abuse firm resources for their own personal gain. In any case, these incidents could leave accounting firms to recoup lost funds and missing or damaged materials.
Insurance Considerations for Accounting Firms
To help address their exposures and stay protected amid potential losses, accounting firms should consider the following forms of coverage:
- Professional liability coverage—If a client alleges that an accounting firm’s staff provided negligent services or made other professional mistakes, this coverage—also called errors and omissions insurance—can help pay the resulting expenses.
- General liability insurance—This coverage can assist if an accounting firm is held legally or financially liable for injuries, harm or damage to another party or their property.
- EPL coverage—An accounting firm may face legal action alleging workplace discrimination or harassment, wrongful termination or discipline, failure to employ or promote, or other unlawful employment practices. In these situations, EPL coverage can help reimburse the associated legal defense costs.
- Cyber liability insurance—This coverage can help compensate certain first- and third-party expenses that may result from an accounting firm experiencing a data breach, ransomware attack or other cyber incident.
- Commercial property coverage—This coverage can help pay the resulting repair or replacement costs if an accounting firm’s property—such as office space, furniture, equipment and financial documents—gets damaged, stolen or destroyed due to a covered event.
- Business interruption insurance—If an accounting firm is forced to temporarily close its doors due to direct physical damage caused by a covered event, this coverage can help compensate the firm’s typical operating costs (e.g., business income, commercial mortgage and tax payments, lease and loan expenses, and staff payroll) during the closure.
- HNOA coverage—This coverage can assist with expenses stemming from an accounting firm’s staff getting involved in accidents on the road while operating rental or personal vehicles for business purposes.
- Workers’ compensation insurance—If an accounting firm’s staff get injured or become ill on the job, this coverage can help pay for their medical treatment and rehabilitation costs, as well as their lost wages.
- Commercial crime coverage—Also known as fidelity insurance, this coverage can help reimburse an accounting firm for losses caused by theft, staff dishonesty and other commercial crimes.
- Inland marine insurance—An accounting firm’s business property, specifically financial documents and office materials, may get damaged due to a covered event while being transported or temporarily stored off-site. In these cases, this coverage can help pay the associated recovery costs.
- Umbrella and excess liability coverage—If an accounting firm’s claim costs exceed the limits for its primary liability policies, this coverage can increase those limits. Furthermore, umbrella policies can broaden existing policy coverage.
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