Why Should Accountants and Bookkeepers Get Errors and Omissions Insurance?

A common misconception is that doctors and lawyersIRS-assessed penalties and interest the client was
are the only professionals in need of Errors andcharged. Also, if the preparer overlooked or failed to
Omissions (E&O) insurance. In fact, nearly everyinclude information provided by the client, they would
organization that provides a service to a client for aalso be at fault. Even if a client failed to provide a
fee has E&O exposure, and because professionalpiece of information to the tax professional and then
requirements are broadly defined in legal terms,filed a frivolous suit, the tax preparer would still have to
Professional Liability insurance shields businesses frompay potentially exorbitant legal fees to defend
the unforeseen.themselves.
Errors and Omissions insurance, also known asEven the most minor mistakes can cause substantial
Professional Liability Insurance, protects organizationsproblems for clients, and without Errors and Omissions
or individuals against claims of professional negligenceinsurance for tax preparers, a firm or individual would
throughout a variety of professional services. Thislikely not be able to survive even a single claim brought
includes errors or omissions that the company actuallyagainst it.
made or that the client perceives were made. ErrorsBookkeepers Require Coverage Too!
and Omissions claims are not covered by GeneralLikewise, bookkeeper Errors and Omissions coverage
Liability insurance.would protect the bookkeeper in similar situations
Insurance for Tax Preparerswhere figures might have been miscalculated or
Errors and Omissions insurance is particularly importantinformation was omitted, regardless of whether or not
for Certified Public Accountants, bookkeepers and taxit was their fault or their client's fault.
preparers. Every year, in the U.S., thousands of suitsHistory has shown that when a major corporate
are filed against tax preparers and bookkeepers, and,scandal is uncovered, racketeering lawsuits against
in the wake of nearly every corporate scandal, newaccountants typically increase. According to an article
lawsuits arise.published by the Manhattan Institute for Policy
For bookkeepers, tax preparers and accountants, theResearch, during the late 1980s, in the midst of the
tax and audit landscape is constantly changing. ClientsSecurities and Loan debacle, damage claims against
rely on these professionals to be up-to-date andaccountants were estimated to be between one and
accurate, but no matter how polished a tax preparerfour billion dollars - a figure that was purported to
or accountant is, and regardless of how seamless theirexceed the net capital of all accounting firms combined
risk management procedures are, mistakes will happen.(Lawson & Olson). While some were involved in ill
For instance, if a client is audited on their tax return,doings, others were reputable professionals. While a
and there is in fact an error resulting from a simplelitigation onslaught of this magnitude may never be
miscalculation on the tax professional's part, the taxrepeated, it is a risk that E&O insurance for
professional would be held responsible for anyaccountants will safeguard against.