Understanding Errors and Omissions Insurance
This is tax season. For the ordinary taxpayer the deadline for filing your personal return for the tax year 2017 is April 17, 2018. Why not April 15th? Well, this year April 15th falls on a Sunday and April 16th, according to the IRS, “Emancipation Day – a legal holiday in the District of Columbia – will be observed on that Monday, which pushes the nation’s filing deadline to Tuesday, April 17, 2018. Under the tax law, legal holidays in the District of Columbia affect the filing deadline across the nation.” And if you’re a business owner the due date varies by the business type. There is much to understand about completing and filing tax returns and if you are a tax preparer or accountant the necessity of understanding errors and omissions insurance is critical.
Errors and omissions insurance goes by many names…
If you’re a regular reader of the John Bailey Insurance Company blog, then you might remember last August we published “Consider 5 Critical Items for Professional Liability Insurance.” At that time, we covered in detail the various names that errors and omissions insurance (E&O) can be referred as…professional liability insurance (PLI) and professional indemnity insurance (PII). Today, we want to zero in on why accountants need to focus on this coverage type.
Accountants work with consumers
Let’s face it! The average consumer’s ability to understand tax law ranges from no understanding to being very well informed. This range can make for difficult transactions between an accountant and their client(s). After all, the client is paying for a service and they expect fast and proficient service.
In September 2017, Charong Chow writing for the CPA Practice Advisor shed light on the importance of accountants working with a knowledgeable insurance broker to assure their E & O coverage is adequate.
“The Top 100 U.S. CPA firms have claims alleged against them at an alarming rate, despite having world-class resources for client selection, tax adherence, auditing standards, fraud detection, and in house general counsel to defend them. Even with all of these resources, a mere frivolous claim is a massive distraction. One of the most unavoidable issues is reputational risk and the burden that a claim brings. Adhering to client needs is difficult enough. The last thing any CPA needs is a lawsuit over their head and worrying if they have the proper financial backstop to handle the matter.”
Accountants work all year round
Most people start thinking about “doing their taxes” or having their taxes prepared when they receive their W-2(s) and/or 1099s. Various television ads for nationwide tax preparation firms might also alert one to get organized. But accountants need to stay organized and abreast of any tax law changes throughout the year. For accountants, tax season is every season: summer, spring, winter or fall.
Accountants must maintain their proficiency in federal tax law and that of many states where their clients may need to file state returns. Fortunately, there are national professional associations, such as American Institute of Certified Public Accountants (AICPA), and state specific associations like the Tennessee Society of CPAs that serve as trusted resources for accountants. Additionally, most states have a Board of Accountancy similar to Tennessee’s State Board of Accountancy. In Tennessee, “a CPA should be aware of and understand state law and rules regarding licensing requirements, maintain independence of thought and action, endeavor to continually improve professional skills, observe generally accepted accounting principles and auditing standards, promote sound financial reporting, uphold the dignity and honor of the accounting profession, and maintain high standards of professional conduct.”
In February 2018, Accounting Web offered some industry insights about What Keeps Accountants Awake at Night, if you are an accountant you might want to subscribe.
John Bailey Insurance Agency serves small and mid-sized accounting firms. We specialize in custom insurance packages tailored to your operational requirements handling risk management, so you can focus on your clients. Contact our team today.