Auditor Insurance Policy Information
Auditor Insurance. As an auditor, you are responsible for making sure that the financial records of your clients are accurate and to assess and pinpoint any financial issues that may arise. Due to the nature of your business, there really is much room for error; however, no matter how meticulous you are, there's always a chance that something could go wrong.
Auditors are accountants who specialize in the review and verification of financial records, bookkeeping, and preparation of financial statements or taxes compiled by others. This service is offered to the general public, a specific firm, or group of client firms.
An auditing firm may or may not carry the Certified Public Accountant (CPA) certification. The need for the CPA certification depends on the type of work the auditor will be providing and the purpose or type of financial statements the auditor will prepare for the client.
If a CPA certification is required, the auditor must have knowledge and experience in working with generally accepted accounting principles (GAAP) or statutory accounting principles (SAP), depending on the client.
Often, the financial work done for the client needs verification that the research, review, and content of the statements meet specific acceptable accounting standards and this verification can be offered only by a CPA.
The background, education, certification, experience, and professionalism of the auditor are items to consider, as well as the type of audits performed. Some auditing firms offer such ancillary services as legal, business management, personnel, or miscellaneous consulting.
Protecting your business and yourself with the right type of insurance coverage is crucial. If something does go awry, you'll be protected from potential financial devastation. What type of risks to auditors face? What kind of auditor insurance coverage should they carry? Find the answers to these questions below.
Auditor insurance protects your auditing firm from lawsuits with rates as low as $37/mo. Get a fast quote and your certificate of insurance now.
Below are some answers to commonly asked auditor insurance questions:
- What Is Auditor Insurance?
- How Much Does Auditor Insurance Cost?
- Why Do Auditors Need Insurance?
- What Type Of Insurance Should Auditors Have?
- What Does Auditor Insurance Cover & Pay For?
What Is Auditor Insurance?
Auditor insurance is a type of professional liability insurance that provides coverage for auditors in the event of claims or lawsuits related to their work. This insurance protects auditors from financial losses due to errors, omissions, or other mistakes made in the course of performing an audit.
The coverage may include costs associated with legal defense, settlements, or judgments.
This insurance is particularly important for independent auditors, who may face a higher risk of liability compared to auditors working for larger firms.
How Much Does Auditor Insurance Cost?
The average price of a standard $1,000,000/$2,000,000 General Liability Insurance policy for small auditing businesses ranges from $37 to $59 per month based on location, types of audits done, payroll, sales and experience.
Why Do Auditors Need Insurance?
There are a lot of risks that come along with managing someone else's finances. For example, when auditing a business, your findings may indicate that they were in compliance with the standards and laws; however, another investigation finds that, in fact, the business wasn't compliant and they are hit with substantial fees.
The organization may thing that you, the initial auditor, missed something, and as such, it's your fault that they now have to pay fines and fees.
Or, if you find that a business you audited isn't in compliance and they use the recommendations you noted to fix the issues you found, yet the problem wasn't corrected and they face additional fines and fees. In either case, you could be looking at a lawsuit.
Add to the above scenarios and the lawsuits that could be associated with them the fact that you may employ a staff, the property and supplies that you use to operate your auditing business, and the fact that you may travel to perform your duties and there are so many reasons why being properly insured is important.
Without insurance, you will have to pay any expenses that you are liable for out of your own pocket, including legal fees, property damages, and personal injuries; but, with the right auditor insurance coverage, you can avoid the financial repercussions that are associated with the risks that your auditing business faces.
What Type Of Insurance Should Auditors Have?
The specific type of insurance coverage you should carry depends on the unique features of your auditing business. For example, the type of clients you audit, the size of your organization, and where your business is located are just a few of the factors that will determine what type of auditor insurance you need and how much coverage you should carry.
However, regardless of the specifics of your business, there are certain types of insurance that all auditors should carry, including:
- Professional Liability - Also known as errors and omissions (E&O), professional liability insurance covers any professional mistakes or errors that you may make and anything that you might be overlooked or omitted. For instance, if someone sues you because you made an error while auditing their business, professional liability insurance will help to cover the cost of any legal fees, as well as the damages that you may be liable for paying.
- Commercial General Liability - In addition to professional liability insurance, auditors should also carry a commercial general liability insurance policy. This type of coverage protects you against property damage and bodily injury claims; if you spilled a coffee on someone else's computer while performing an audit or if a client tripped over equipment while visiting your office, commercial general liability insurance will cover any associated damages or medical care, as well as legal fees if a lawsuit is filed.
- Commercial Auto - As an auditor, chances are you spend a good bit of time traveling from one location to another to perform your duties. If you're involved in an accident while you're on the job, your personal auto insurance policy might not cover the damages. A commercial auto policy, however, would pay for any damages to another person's property if you cause an accident while you're traveling for work-related reasons.
These are just a few examples of the auditor insurance coverage that auditors should carry; other policies might include computer network security coverage, personal and advertising injury coverage, and commercial property insurance, just to name a few.
Auditing Risks & Exposures
Premises liability exposure is often limited since most client contact is done electronically or by mail. If clients visit the premises, they must be kept in designated areas so that they cannot view or overhear conversations regarding others clients' confidential information. To prevent slips, trips, or falls, all areas accessible to clients must be well maintained with floor covering in good condition.
The number of exits must be sufficient, and be well marked, with backup lighting in case of power failure. Parking lots and sidewalks need to be in good repair with snow and ice removed, and generally level and free of exposure to slips and falls.
Off-site exposures arise from physical reviews of records at clients' premises. There must be procedures for appropriate behavior. Complaints about auditors should be dealt with quickly.
Professional liability exposure is extensive. The exposure increases if the firm fails to conduct thorough background checks to verify employees' credentials and education, if clerical workers are allowed to do tasks that only the professionals should handle, or if error checking procedures are ignored or are inadequate. Very serious losses may result from failure to document decisions and actions or to secure client approval.
Workers compensation exposure is generally limited to that of an office. Because work is done on a computer, potential injuries include eyestrain, neck strain, carpal tunnel syndrome, and similar cumulative trauma injuries that can be addressed through ergonomically designed workstations. Some auditing firms have significant off-site work for audits, training, and similar activities. Workers can be injured by slips and falls at clients' premises or in automobile accidents.
Property exposure is generally limited to that of an office, although there may be some incidental storage or an area for meetings. Ignition sources include electrical wiring, heating, and air conditioning systems, wear, and overheating of equipment. Computers and other electronic equipment may be targets for theft.
Crime exposures are from employee dishonesty, which can be quite serious as auditors and their staff possess unique access to customers' financial information, including bank records and investment accounts. Potential for theft, directly or by means of identity theft, is great. Hazards increase without proper background checks, along with monitoring procedures and securing of all records to prevent unauthorized access.
All job duties, such as ordering, billing and disbursing should be separate and reconciled on a regular basis. Receipts should be issued for any cash payments received. Bank deposits should be made on a timely basis to limit the buildup of cash on premises. Audits should be performed at least annually.
Inland marine exposures are from accounts receivable if the auditor offers credit, computers and valuable papers and records for customers' information, which may be originals that are difficult to re-create. Power failure and power surges are potentially severe hazards. A morale hazard may be indicated if the insured does not keep valuable papers and disks in fireproof file cabinets to protect them from smoke, water, and fire. Duplicates should be kept off-site to allow for re-creation in the event of a loss.
Business auto exposure is generally limited to hired and non-owned. If vehicles are provided to employees, there should be written procedures in place regarding personal use by employees and their family members. All drivers must have appropriate licenses and acceptable MVRs. Vehicles must be maintained, and records kept in a central location.
What Does Auditor Insurance Cover & Pay For?
Auditors can be sued for various reasons, including negligence, fraud, breach of contract, or errors and omissions. Professional liability insurance, also known as errors and omissions (E&O) insurance, can help protect auditors from the financial consequences of these lawsuits. Here are some examples of situations where auditors might be sued and how insurance can help:
Negligence: If an auditor fails to identify material misstatements or errors in a company's financial statements, the company or its shareholders may sue the auditor for negligence. Insurance can help by covering the legal costs, settlements, or judgments related to the negligence claim, up to the policy limits.
Fraud: If an auditor knowingly misrepresents financial information or is complicit in fraudulent activities, they can be sued for fraud. Although E&O insurance typically does not cover intentional fraudulent acts, it can help pay for legal defense costs if the auditor is falsely accused of fraud or if the claim is determined to be groundless.
Breach of contract: If an auditor fails to fulfill their contractual obligations, they can be sued for breach of contract. Insurance can help cover the legal costs, settlements, or judgments related to the breach of contract claim, up to the policy limits.
Errors and omissions: An auditor may be sued for errors or omissions in their work, such as failing to detect a material misstatement or an internal control weakness. Insurance can help cover the legal costs, settlements, or judgments related to the errors and omissions claim, up to the policy limits.
Failure to meet professional standards: If an auditor fails to follow Generally Accepted Auditing Standards (GAAS) or other professional standards, they can be sued for professional malpractice. Insurance can help cover the legal costs, settlements, or judgments related to the professional malpractice claim, up to the policy limits.
In all these cases, professional liability insurance can help auditors mitigate the financial risks associated with lawsuits. It is essential for auditors to maintain adequate insurance coverage to protect their assets and reputation in the event of a lawsuit. However, insurance coverage may not cover every claim, and policy limits will apply. Auditors should consult with an insurance professional to ensure they have the right coverage for their specific needs.
Commercial Insurance And Business Industry Classification
- SIC CODE: 8721 Accounting, Auditing, and Bookkeeping Services, 7291 Tax Return Preparation Services
- NAICS CODE: 541211 Offices of Certified Public Accountants, 541213 Tax Preparation Services
- Suggested Workers Compensation Code(s): 8803 Auditor, Accountant, or Computer System Designer or Programmer - Traveling, 8810 Clerical Office Employees NOC
Description for 8721: Accounting, Auditing, and Bookkeeping Services
Division I: Services | Major Group 87: Engineering, Accounting, Research, Management, And Related Services | Industry Group 872: Accounting, Auditing, And Bookkeeping Services
8721 Accounting, Auditing, and Bookkeeping Services: Establishments primarily engaged in furnishing accounting, bookkeeping, and related auditing services. These establishments may use data processing and tabulating techniques as part of providing their services. However, establishments primarily engaged in providing data processing and tabulating services are classified in Industry 7374. Establishments providing income tax return preparation service without also furnishing accounting, auditing, or bookkeeping services are classified in Industry 7291.
- Accounting service
- Auditing service, accounts
- Bookkeeping and billing service
- Certified public accountants (CPAs)
- Payroll accounting service
- Public accountants certified
Description for 7291: Tax Return Preparation Services
Division I: Services | Major Group 72: Personal Services | Industry Group 729: Miscellaneous Personal Services
7291 Tax Return Preparation Services: Establishments primarily engaged in providing tax return preparation services without also providing accounting, auditing, or bookkeeping services. Establishments engaged in providing income tax return preparation services which also provide accounting, auditing, or bookkeeping services are classified in Industry 8721.
- Income tax return preparation services without accounting, auditing
- Tax return preparation services without accounting, auditing or
Auditor Insurance - The Bottom Line
To ensure your business is properly protected, speak with an experienced agent that specializes in auditor insurance.
Additional Resources For Professional Services Insurance
Get informed about small business professional services insurance, including Professional liability, aka errors and omissions (E&O insurance), that protects your business against claims that a professional service you provided caused your client financial loss.
- Answering Service
- Armored Car
- Attorney Lawyer
- Background Music Services
- Business Consulting
- Chemical Engineers
- Civil Engineers
- Claims Adjuster
- Commercial Laundries
- Commodity Broker
- Corporate Wellness
- Court Reporter
- Credit Bureaus
- Debt Collection Agency
- Detective Agency
- Diaper Services
- Electrical Engineering
- Environmental Consultant
- Executive, Career & Life Coaching
- Executive Search Firm
- Expert Witness
- Financial Planner
- Financial Services
- Funeral Directors
- HR Consultant
- Inspection Bureaus
- Insurance Agents & Brokers Insurance
- Mediator - Arbitrator
- Medical Billing
- Music, Drama & Dance Therapy
- Office Machine Repair & Maintenance
- Piano Tuners
- Project Management
- Safety Consultants
- Speakers Bureaus
- Tax Preparer
- Temporary Staffing
- Title Abstractors
- Valet Parking
- Specialty Consultants
- Specialty Service Business
The professional services industry, which includes occupations such as lawyers, doctors, accountants, and architects, often deals with sensitive and complex issues that carry a high risk of liability. These professionals are expected to provide their clients with expert advice and guidance, and any mistakes or oversights can result in significant financial consequences for both the client and the professional. This is where insurance comes into play.
Business insurance provides protection against the financial repercussions of potential mistakes or accidents that may occur while providing professional services. For example, a lawyer may make an error in their legal representation that leads to a financial loss for their client. Without insurance, the lawyer would be personally responsible for covering the cost of this loss. Insurance helps to protect professionals from these types of financial burdens and allows them to focus on providing high-quality services to their clients.
In addition to protecting against financial losses, commercial insurance can also provide legal defense for professionals facing legal action as a result of their work. This can be especially important for professionals in high-stress or high-risk fields, such as doctors or architects, who may be at a higher risk of being sued for professional negligence.
Overall, the professional services industry needs insurance to protect against financial losses and legal action, ensuring that professionals can continue to provide high-quality services to their clients without the added stress and burden of potential financial consequences.
Minimum recommended small business insurance coverage: Business Personal Property, Employee Dishonesty, Accounts Receivable, Computers, Valuable Papers and Records, General Liability, Employee Benefits Liability, Professional Liability, Umbrella Liability, Hired and Non-owned Auto Liability & Workers Compensation.
Other commercial insurance policies to consider: Building, Business Income with Extra Expense, Earthquake, Equipment Breakdown, Flood, Computer Fraud, Forgery, Money and Securities, Special Floater, Cyber Liability, Employment-related Practices Liability, Business Auto Liability and Physical Damage and Stop Gap Liability.