CPAs are facing more risks than ever before. As the role of accountants expands beyond traditional number-crunching, they find themselves in the midst of lawsuits, compliance issues, and fraud cases. Many accounting firms are unaware of how vulnerable they truly are.
The profession has evolved significantly. Accountants are now involved in areas like investment consulting, offshore outsourcing, and even selling insurance. This shift has led to increased liability, especially as firms seek to diversify their services. Tax-related claims are now the majority of liability cases reported by McGowan Program Administrators, with the trend of exposure continuing to rise.
Dogan Tuncel, a national program manager at McGowan, sees these changes firsthand. With over 20 years in risk management, he helps accounting firms across the U.S. identify weaknesses in their insurance coverage. He has noticed that many firms still depend on outdated errors and omissions (E&O) policies that do not match their current operations. Tuncel warns that if insurance coverage does not keep pace with a firm’s new business model, it could lead to serious consequences.
To better serve clients and increase revenue, many firms are branching into advisory services and even life insurance sales. However, these new services come with additional risks, especially as firms outsource work overseas. Tuncel emphasizes the importance of oversight in these situations and advises firms to ensure their contracts with clients are clear and transparent.
The regulatory landscape is also becoming more complex. In industries like cannabis, firms must navigate conflicting federal and state tax laws. Additionally, issues arising from the pandemic-era Employee Retention Credit (ERC) program have added another layer of risk, with instances of fraud becoming more common.
While technology was once seen as a solution, the heavy reliance on tax software can create a false sense of security. Tuncel points out that software is only as reliable as the information inputted. Missteps in tax filings, often due to simple errors or missed deadlines, now account for about 65% of claims reported to McGowan.
Audit-related claims, although less frequent, carry more financial weight. Failures to detect fraud or maintain independence can lead to significant payouts and damage a firm’s reputation. Long-standing client relationships, which may seem secure, can also become unexpected liabilities.
New regulations, like the Corporate Transparency Act (CTA), are pushing CPAs further into compliance roles without clear guidelines. Many accountants are seeking guidance on their responsibilities in light of these changes. However, many firms still rely on generic E&O policies that might not cover their specific services.
To address these challenges, McGowan has introduced the CPA One Pro policy, which is designed to cater to the modern CPA’s range of services. This policy offers flexibility and broader coverage, accommodating firms that engage in activities outside traditional accounting.
Risk management practices are becoming increasingly vital. Firms that implement best practices, such as using engagement letters and mediation clauses, may even receive premium credits on their insurance. Tuncel highlights the importance of being prepared for legal proceedings, noting that even if a CPA has done nothing wrong, they could still face significant costs if pulled into a lawsuit.
Today, CPAs are not just accountants; they are also compliance officers, advisors, and risk managers. Those who have not updated their insurance coverage may be at risk of facing serious gaps in protection. Recognizing the changes in the accounting profession is crucial, and firms must ensure their insurance keeps up with these developments to avoid costly consequences.