There are many types of Professional Associations which offer Accountancy Insurance. All professional indemnity insurance policies will protect an accountants professional liability in the event that they are sued by a client in a civil or criminal court. The policy may also cover the cost of dealing with a claims consultant and legal fees if a client is not satisfied with the services provided. Most of these policies have a ceiling amount of financial reward for when the claim is settled outside of court.
In order to understand the difference between a business with a general accountant and one with a qualified, licensed, and independent accountant you need to understand the difference between a CPA (certified public accountant) and an APA (acting accountant). A certified public accountant has been formally trained and approved to practice in all matters relating to public accounting and is required to take an examination before becoming a professional. An APA (acting accountant) is required to take a limited examination to be accepted by the American Institute of Certified Public Accountants, but is not required to meet any other professional liability requirements.
Professional indemnity insurance is not a legal requirement for CPAs, because CPAs do not engage in the type of activity which would normally give them cause to be subjected to litigation or claim. However, accountants professional liability coverage protects them from claims made against them by clients for negligence or errors of omission which result in the loss of a client’s money or assets. Professional liability coverage also covers situations where an accountant’s client accidentally e-mailes or posts to their blogs or websites containing information which causes damage to a client’s computer or software. For example if the client type in a password on a website which results in the loss of a digital agency’s client database, or if a client accidentally deletes a document from their computer then they could potentially claim to have suffered a claim for malpractice or professional negligence.
There are two different approaches that CPAs take when choosing their accountancy or taxation professional indemnity insurance policy, and these are either through discount brokers or through a median cost method. The median cost approach is used by most CPAs because it involves the lowest cost premiums as possible, and because this is the most common way that CPAs purchase their cover. CPAs calculate their accountancy and taxation insurance costs by estimating the cost of claims that would arise against them under different scenarios. Each of these scenarios is then plugged into a single line of code, which sums up to the amount of compensation insurance cost analysis page that each accountant would have to pay out if they were sued. Since the estimates are usually quite accurate most CPAs then only buy the minimum amount of coverage which is dictated by their client.
If a client suffers a claim against an accountant then the responsibility of recovering their losses lies with their insurer, not the CPAs. This means that if a client suffers a claim for loss of valuables or valuable papers then the client would have to do everything possible to prove they are worth money. In the past many accountants have been forced to pay out large amounts of money for retrieving lost or damaged valuable papers. This has lead many accountants to obtain an Accounting Insurance policy in order to cover themselves in the event of a data breach coverage case. Data breach coverage usually comes with a large price tag, but it is often well worth it in the event of such a situation.
The main reason for most CPAs purchasing insurance accounting policies is because they cover them for legal fees should a customer claim they have been injured as a result of their work. Some employers will not make workers’ compensation claims on account of the fact that they will be paying the accountant’s a large sum of legal fees. In order to avoid this large sum of money clients of accounting firms should ensure that all of their employees carry out proper liability insurance which is designed to compensate for workers’ compensation claims.