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Posted on: January 10, 2019 by Huntersure
Tax season is just about to get underway and accountants are already preparing for another busy season. While there may be a lot of things to get in order, such as all the relevant files and coordination with clients, there needs to be an emphasis on understanding the liabilities and duties of an accountant to avoid possible costly mistakes.
Accountants handle very sensitive information and it’s important to keep in mind the different responsibilities and liabilities. This can all add pressure to an accountant’s performance, but it’s important to stay diligent. Here’s a look at the legal duties and liabilities of accountants.
When accountants take on new work, they must perform their obligation that they have agree to do under a contract, according to the ruling Ryan v. Kanne, set in Iowa in 1969. Dealing with a company’s or client’s tax and financial information can open the door to many different possible liabilities. Yes, small mistakes and errors can happen, but they can be quite costly. Even small rounding errors have led to hefty liability claims against accountants.
Accountants are expected to do their work with the utmost diligence and honesty, staying away from knowingly committing fraud and unknowingly making errors and omissions. Having accountants professional liability insurance set will help to provide financial help and cover court costs in the event of litigation over possible claims against an accountant. Accountants professional liability insurance is a safety net for tax professionals who find themselves in the middle of a legal fight over such things as fraud and negligence.
Accountants are held to a very strict standard of care, much like doctors, lawyers, architects and engineers. Being an accountant means being able to complete your expected tasks with a high standard that’s required as well as reasonable care and competence.
Negligence is a typical claim that can be made against accountants. An accountant’s liability for general negligence in the conduct of an audit of its client’s financial statements is typically confined to the client. If a client feels that the tax professional they hired didn’t do their work to their expectations and missed certain things on their returns, then they can turn around and sue.
Another liability relates to fraud. Employee theft can occur at any firm, including CPA firms, but it can present a catastrophic loss when it occurs at one of the firm’s clients. It’s not the accountant’s job to detect fraud, but they consistently have the finger pointed at them as they person to blame. CPA firms may find themselves being a target when they are smaller in size and will see increased exposure as they grow.
When it comes to wealth transfer, accountants are on the hook for dealing with handling transferring estates for families. Professional liabilities can arise when a CPA is called on to act as a financial advisor, trustee or executor for the client, not a beneficiary.
Beneficiaries will look to the accountant as the party to blame if they find out there is more money they could have gotten in an estate settlement. CPA’s can avoid finding themselves in this kind of trouble by having the right documentation, legal protection and accountants professional liability insurance that can all set the tone of a mediation and do away with nuisance claims.
Huntersure LLC is a full-service Managing General Agency that has provided insurance program administration for professional liability products to our partners across the United States since 2007. We specialize in providing insurance solutions for businesses of all sizes. Our program features can cover small firms (grossing $2.5 million annually) to large corporations (grossing $25 million annually or more). We make doing business with us easy with our breadth and depth of knowledge of E&O insurance, our proprietary underwriting system that allows for responsive quoting, binding and policy issuance and tailored products to meet the needs of your insureds. Give us a call at (646) 751-3030 to learn more.
Posted in: Accounting blog