Why CPAs Believe They May Not Need Professional Liability Insurance & Why They’re Mistaken

Ask ten CPAs about how an accountant can avoid legal liabilities, and you’ll likely get ten very serious answers about best practices, continuing education, the importance of engagement letters, and more. What you won’t always hear about, however, is the importance of CPA-specific professional liability insurance coverage.
Why is it that one of the most effective tools to help insulate a CPA from legal exposure isn’t universally accepted as a necessary component of sound risk management?

What Is Professional Liability Insurance for CPAs?

Professional liability insurance for CPAs offers protection to accounting firms and individual CPAs against claims of errors and omissions arising from professional services rendered to clients. Depending on the insurance product chosen, a professional liability insurance policy can also provide additional support and resources that can assist a CPA with best practices, education, and risk mitigation.
The truth is that CPAs who reject the notion of buying professional liability insurance simply may not fully understand the potential risks. So, let’s dig a little deeper. Here are some common reasons CPAs cite for not having professional liability insurance—and why those reasons should be reexamined.

They’re too Small to Have to Worry

For smaller CPA firms and sole practitioners offering non-complex tax and bookkeeping services, a professional liability insurance policy can sometimes feel excessive. The rationale in such instances is that only big firms or CPAs that handle complex clients or industries need to worry about liability. The truth is that no CPA is immune to a professional liability claim or litigation. Even accountants who are only handling personal tax returns or other perceived low risk engagements can be targets. In fact, over one-third of actual claims reported to CNA, the underwriter of the AICPA Professional Liability Insurance Program, emanated from small firms[1].


Their Clients Would Never Sue Them

It’s a common misconception that, because you’re on good terms with a client today, you’ll be on good terms with them tomorrow. Circumstances change and should a client or their business take a financial hit—even if you and your firm had nothing to do with it—they could look to blame you in order to cover their financial losses and rehabilitate their reputation. Unfortunately, CPAs make easy scapegoats, even those that have great relationships with their clients.

It’s too Expensive

For small CPA firms and sole proprietors who believe that they use quality control practices, a professional liability insurance policy can feel like an unnecessary expense. While a CPA can go decades without being subject to a claim, the cost of just one lawsuit could exceed the total amount of insurance premiums that would have been paid during those previous years.
Also, when CPAs choose an insurance product designed with their unique risks in mind, they can receive access to vital resources that can help keep them advised of changing regulations, offer subpoena assistance, monitor trending risks, provide continuing education, and more. In other words, a professional liability insurance policy isn’t just a reactive product to be used in the event of a claim or lawsuit; it’s a preventative product that can offer support and education to help strengthen your quality control framework.
Additionally, a first year professional liability policy for a small firm offered by the AICPA Member Insurance Programs is typically under $600—plenty affordable given all that it offers a policyholder.

Having Insurance will Invite Claims or Litigation

Some CPAs believe that carrying professional liability insurance may invite professional liability claims or litigation, because it will imply that they have deep pockets. The reality is that if a client or third party has (in their minds) a reason to pursue a claim, they will do so - regardless of whether or not their accountant carries professional liability insurance. You may do everything right, and be able to prove it, but should a client of yours face hefty tax penalties, file for bankruptcy, have an employee embezzle from them, or have other financial woes, they might come after you to offset those losses. It’s not about the perception of deep pockets: a professional liability policy exists to help keep you safe should a client or third party decide to sue.

Risk Management Processes are Sufficient

For CPAs and firms that follow professional standards to a “T” and keep up with training and education, it can seem redundant to also have a professional liability policy. The sad truth is that you and your team may seem to do everything right and still be the target of a claim. Another sad truth? You or someone on your team might make a mistake—you’re only human after all. A professional liability policy should be viewed as just one more tool in your risk management toolbox.

The Insurance Product is Misunderstood

Many CPAs view a professional liability policy as something that only offers one feature: coverage in the face of a claim. While this protection is certainly the primary benefit of a policy, it really only scratches the surface of what a professional liability policy can offer.
What other features does a comprehensive professional liability policy provide to its policyholders? Well, with the AICPA Member Insurance Program policyholders can also receive the following:

  • Risk control advice

  • Extensive risk control resources

  • Engagement letter templates

  • Supplementary assistance

    • Subpoena and deposition assistance

    • Pre-claim assistance

    • Regulatory inquiries

  • Access to the CNA Accountants Professional Liability Assistance Line, staffed by licensed CPAs with extensive experience in public accounting

  • Specialization that’s focused specifically on what CPAs need

  • And more

They Don’t Realize It Will Help Them Compete

To many would-be clients, a CPA firm with professional liability insurance is more desirable than a firm without one. For many clients, it’s a requirement to do business with them. Why? It shows the CPA firm or individual in question understands risk and does what they can to mitigate risk appropriately. Maintaining a professional liability policy, can provide a competitive advantage over CPAs that lack one.
Don’t put your business at an unnecessary risk. Reach out today and discover how the AICPA Member Insurance Programs can help protect your firm and livelihood.

[1] Source: CNA Accountants Professional Liability Claim Database, underwritten by Continental Casualty Company. Copyright © 2022. All rights reserved.

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This information is provided for general informational purposes only and is not intended to provide individualized advice. All descriptions, summaries, or highlights of coverage are for general informational purposes only and do not amend, alter, or modify the actual terms or conditions of any insurance policy. Coverage is governed only by the terms and conditions of the relevant policy.