Accountants E&O

Accountants errors and omissions (E&O) is a form of professional liability insurance built for CPAs, bookkeepers, tax preparers, and financial advisory firms. It responds when a client claims that a negligent act, error, or omission in professional services caused them a financial loss, examples include a botched tax return that triggers IRS penalties, a missed audit disclosure, an erroneous financial statement relied on by a lender, or bad advice on a transaction. Coverage is almost always claims-made, and only acts occurring after the policy's retroactive date are covered.

This matters to a small accounting practice because the exposure is purely economic: no bodily injury or property damage occurs, so a general liability policy simply will not respond. A single reliance on a firm's numbers, by a client, an investor, or a bank, can generate a claim many times the size of the engagement fee. Most policies also fund the cost of defending the accountant even when the allegation is groundless, which is significant because regulatory inquiries and fee disputes frequently escalate into E&O claims.

A practical nuance: buyers should check whether the policy covers ancillary services the firm actually performs, such as bookkeeping, payroll, business valuation, or investment advice, since a form scoped only to "accounting" may exclude them. Because claims often arrive years after a return is filed, maintaining prior acts coverage when switching carriers and purchasing tail (extended reporting period) at retirement is essential to avoid an uninsured gap. Larger firms doing SEC-registrant audit work face steeper rating than firms handling small-business tax prep.