Accounting E&O trends explained
The US accounting industry is worth an estimated $144.5 billion alone, so it’s very clear that accountants and financial professionals are at the core of every business.
As the referees of the business world, accountants make sure finances and transactions are run compliantly and accurately. But as this industry finds itself at the forefront of significant changes, it’s becoming even more important that these professionals hold substantive, tailored insurance. We’ve covered the top three key changes or trends we see affecting accountants currently and in the near future.
- Talent shortages
2021 saw a 17% drop in the number of corporate finance workers, CPAs and accountants, proving that the ‘Great Resignation’ effects continue to be felt. The US-based Controllers Council expects these shortages to affect the 2023 tax season and beyond, while the US Department for Labor Statistics expect around 136,400 openings for accountants and auditors each year on average for the next 8 years.
The limited supply of professionals in this space puts pressure on the existing number of accountants to meet demand, be that in performing tax return filings, or handling accounting or audit processes for businesses and corporations. More pressure and higher workloads could increase the chances of simple errors and omissions on the part of these professionals.
Staffing firms and PEOs could too be needed to plug the gap for accounting and finance personnel. The demand for staffing firms in the finance and accounting sector is expected to grow by 7% in 2023, well above the 2% growth projection for the overall US staffing industry.
Having a market that can provide broad accountant’s E&O coverage, as well as E&O for accountant staffing and PEO exposures, is therefore a valuable tool for any broker writing this class.
- Tech and cyber exposures on the rise
Firms’ investment in remote systems throughout the pandemic, has meant working from home has remained common even in 2023. This reliance on technology has been strongly correlated with a large increase in cyber-attacks and cyber security issues including phishing scams, ransomware and cybercrime events resulting in an overall greater need for robust cyber insurance alongside E&O cover.
Technology also has a hugely progressive role to play in this industry. Accountants regularly rely on both generic and bespoke software to run their business, be it general accounting software like Quickbooks, enterprise resource planning software, invoicing software or payroll software.
Emerging technologies, like blockchain are more commonly being used in accounting, which is harnessed as a means of maintaining a ledger of accurate financial information for accounting firms.
Artificial Intelligence (AI) and automation is growing is prominence too, as machine learning technologies are utilised to improve the efficiency of bookkeeping and accounting processes.
Cloud computing, allows instant access to data, provides accountants with access to real time client information and allows them to analyse data to make decisions more effectively.
Any accountant’s E&O policy therefore, needs affirmative coverage for technology errors, products and services, to address these digital and emerging methods of service delivery.
- Growing claims exposures
Claims inflation is affecting majority of professional services businesses with even smaller claim demands multiplying in size compared to a few years ago.
The growing severity of potential claims is coupled with the fact accountants’ exposures to civil liability now ranges from traditional errors, such as failure to maintain financial compliance, tax filing E&O in budgeting, reporting, payroll and so on, as well as evolving exposures like errors in the technology systems used to run core processes, as well as from cyber threats.
Tax preparation firms too face the exposure of a boisterous Inland Revenue Service (IRS), which levied $37.3 billion in civil penalties in FY 2021, over $33 billion of which was levied against individual, estate and trust income taxes rather than corporations. IRS fines and penalties resistantly find their way to accounting firms, especially if taxes have been prepared and filed incorrectly.
Accountants’ risks are constantly changing, so it’s important to choose a policy that can grow with your business too. When things go wrong, accountants, tax experts, auditors and bookkeepers need to ensure they have the best cover to keep their business running efficiently and without disruption to their own and their clients’ businesses.
CFC offers broad professional liability, cyber and general liability package coverage which provides true peace of mind for financial professionals when disaster strikes.
If you have any questions about accountants’ cover, check out our brochure here or get in touch with the CFC professions team at email@example.com.