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An auditor plays an important role in a company’s accounting and financial record keeping practices. Auditors, like accountants, are primarily tasked with ensuring that a company’s financial records have been prepared accurately and satisfy current laws and regulations. Auditors, however, are focused much more on detecting financial fraud and rooting out any mistakes or errors.
While the role of an auditor is to primarily provide a level of accuracy and security for a company’s financial operations, auditors should also ensure that they themselves are protected from any risks of doing business. Because the work that auditors perform is so critical, there can be serious consequences for auditors in the event of professional errors or misguidance. Lawsuits are common in the financial services industry, and auditors should make sure to safeguard themselves from this financial risk, as well as other risks common to financial services businesses.
Having the right insurance coverage for your auditing business will ensure that you are guarded from any lawsuits against you or your company so that you can stay focused on the work you do for your customers. While it may not commonly occur, dissatisfied clients could sue you over auditing work you’ve done in the past that they have issue with. Windstorms or wildfires could damage your business property. With the rising threat of cyberattacks, sensitive client records could be stolen or, worse yet, your entire computer system hijacked.
A host of other issues could potentially bring catastrophic financial losses to your firm. Ensuring that you’ve purchased the right insurance coverage for your auditing firm can provide protection for your business finances in the event you are sued.
You may be interested in purchasing insurance for your auditing business if:
- You would like to insure your services and practice against claims of poor performance or errors in your work
- You store sensitive customer information like financial reports or tax records
- You employ others and provide employee benefits, like medical, disability, or retirement
- You work in an office that houses valuable equipment or property
- You often meet with clients or customers in your office
What insurance coverage do I need as an auditor?
While there are a number of types of insurance coverages to choose from, there are only a few that are particularly important to auditors. Listed below are the major coverages you should pay attention to.
Professional Liability Insurance
One of the most important coverages to have as an auditor, Professional Liability Insurance, also known as Errors & Omissions Insurance, protects your auditing business from potential client lawsuits due to dissatisfaction with your professional work. These lawsuits may stem from a number of allegations, including claims of negligence, breach of duty, professional errors, and more. Regardless of whether your company is at fault, these types of lawsuits can wreak havoc on your business. Professional Liability Insurance can ensure that your business is financially protected, covering for legal and defense costs, settlements, and any judgments against your company.
- Errors/Negligence: Your auditing firm is hired to audit a local bank’s most recent quarterly financial statements. After your work is done and the bank files its quarterly reporting, an error is discovered in the calculations for payroll taxes. The bank must pay a fine to the IRS. The bank then sues your firm for not catching this error.
- Lawsuits without merit: A small technology company hires your auditing firm to review its annual reporting. During the process of your work, you find systemic issues with the client’s fair value accounting practices with the finance team reporting overly-inflated contract values. You recommend systemic changes with the company’s accounting practices, but the client fails to follow your recommendations. Eventually, the company’s bad practices lead to it filing for bankruptcy, and the client sues your firm for damages.
Commercial General Liability Insurance
A common coverage that most businesses purchase, General Liability Insurance protects your business financially from lawsuits and damages that arise from bodily injury and property damage that is unintentionally caused by your business. General Liability Insurance is third-party insurance, meaning it covers you against claims by third parties, which don’t include your business or your employees. Third parties may include customers, vendors, or landlords. General Liability covers property damage, bodily injury, products & completed operations, and personal & advertising injury.
- Property Damage: You and your team are working at a client’s headquarters during an auditing project. One of your team members accidentally knocks over an expensive sculpture in the client’s lobby. The client sues your company for damages.
- Bodily Injury: A client visits your offices for a meeting and slips on the wet floor in the break room. She breaks her hip and is unable to work for weeks. She sues your company for her medical expenses and lost income.
- Personal and Advertising Injury: One of your employee posts false statements about a competitor on social media. The competitor sues your company for reputational damage.
Commercial Property Insurance
Commercial Property Insurance protects your auditing firm’s physical assets in the case of unforeseen accidents or natural disasters. In such events, having commercial property insurance makes it easier to recover by reimbursing you for the cost of replacing damaged property. This type of insurance is important if you own your building or office condo, or if you have valuable property in your offices such as computer equipment, furniture, or artwork.
- Buildings: A hurricane rips the roof off of your office building, causing serious water damage throughout the building.
- Contents: Someone breaks into your offices and steals dozens of computers and laptops. The value of the equipment stolen totals over $25,000.
- Property of Others: Your company has leased a large format photocopier and printer. When a pipe bursts in your office, the leased equipment is damaged beyond repair.
- A Business Owner’s Policy combines the major property and liability risks that solo or small auditing firms face in one convenient package. It also helps you save money, with lower premiums than buying the individual coverages separately.
- Workers’ Compensation Insurance provides financial benefits to employees who suffer work-related illnesses or injuries while working for your business. In many states, businesses that have employees are required to carry workers’ compensation insurance.
- Example: One of your employees suffers a repetitive stress injury in his hands from using the computer keyboard. Workers’ compensation covers his medical and physical therapy costs.
- Cyber Liability Insurance covers your auditing firm against liability and property losses caused by cyberattacks such as hacks, data breaches, denial of service attacks, and viruses.
- Example: One of your employees clicks on a phishing email, exposing your company network to hackers. Confidential customer documents are stolen, and your customers sue you for negligence in failing to protect their data.
- Employment Practices Liability Insurance, also known as EPLI, provides financial protection for your business against lawsuits by employees accusing your business of wrongful treatment such as discrimination, harassment, or other employment-related issues.
- Example: Employees at your firm belonging to a racial minority feel they are being denied promotions and are paid less due to their race. The employees file a class action lawsuit against your company.
Auditing firms may be more exposed to certain risks than other businesses. Auditing firms deal with confidential customer information on a daily basis, from financial records to tax documents. It is an auditor’s job to sift through and examine highly sensitive customer data. Moreover, the professional advice and guidance that auditors give can have serious impact on a client’s business. Just one mistake could lead to a crippling lawsuit.
Furthermore, there are a number of common risks that all businesses face, regardless of profession or industry. Whether it is a natural disaster or an employee accident, unfortunate events can and do happen. But with the right precautionary measures, you can safeguard the business you’ve built. As a business owner, you should make sure to protect your company and your employees from the risks of doing business by finding the right insurance coverage for your firm.