Accounting firms take great pride in the quality of their work product. They understand that in the accounting world, small mistakes can cause enormous consequences. However, regardless of the extensive quality controls and error-checking mechanisms that a company puts in place, there will always be some number of errors. Fortunately, the insurance industry provides E&O (errors and omissions) insurance to safeguard against lawsuits that may arise because of an accounting error. The human factor is one of the main reasons that companies need accountant professional liability insurance.
When Is the Right Time to Purchase Insurance?
Because insurance offsets risk, the insurance should be in effect when the risk exists. Some accountants assume that risk naturally occurs during the execution of a particular assignment or contract, or at the completion. In reality, E&O insurance is claims-based, meaning that it must be in effect whenever a client makes a claim. For the accountant, this time begins at the time an assignment is complete, and continues through the period of limitations for the contract.
Accountants must be aware of retroactive dates in the insurance contracts, to make sure that they extend before any possible claim levied by a client. Accountants must also pay attention to such additional coverage options as compensation for punitive damages. They must examine the nature of their business and the temperament of their clients to determine the types of lawsuits they can expect.
Accountants can protect the financial viability of their business by making sure they have the proper levels of accountant professional liability insurance.