Review Your Insurance Coverage Now
Source: Accounting Today
The market for professional liability insurance is improving for CPA firms. The reasons include:
- Fall in claims during 2004-2005.
- Claims for public company audits not as high as expected.
- New providers entering the market.
Most renewals are at the same or lower rates.
On the other hand, accountants should be sure to evaluate the quality of policies, especially from new providers. Also, there are new exposures stemming from identity theft, disclosure of client information, problems with hackers, Web security, etc.
Some areas of increased exposure for CPAs:
- Increase in estate tax return issues, probably because CPAs aren’t familiar with the problems that can arise.
- Embezzlement—because there’s an increasing expectation that fraud should be detected.
- Accounting firm employees have stolen client funds.
- Claims in the financial planning area, including poor market timing.
- Firms are vulnerable when they venture into services outside their area of expertise.
Potential future exposure:
- CPAs are increasingly providing services in relatively new areas—more business valuations, consulting on mergers, increased estate planning and succession planning, work on trusts, and advising on investments.
- SOX 404 engagements will eventually include small public companies. This will affect smaller accounting firms.
- Work is more complex because of accounting scandals. Therefore, client screening and engagement design and control are more important.
- Standards for penalties on tax preparers may change.
- Bankruptcy trustees are operating under the expectation that the CPAs should have anticipated the clients’ potential insolvency and warned them to discontinue business to cut losses. It seems far-fetched, and insurance companies will fight it.
From Accounting Today, July 23, 2007, SourceMedia Inc., One State Street Plaza, 27th Floor, New York, NY 10004, 800-221-1809. For the complete article, click here, then select the article Softening Liability Insurance Market Helps Hold Line on Rates from the July 23, 2007, issue.