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Shielding your accounting firm: Buying liability insurance

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Today’s market for professional liability insurance is similar to markets in other industries in that it reflects the changes that the profession is undergoing. As the profession evolves, so does the market. 

“As the CPA profession evolves and new services are offered, it makes for different risks,” explained Candace Coach, small firms sales manager at Aon, the manager for the AICPA Professional Liability Insurance program. 

Among the factors to consider when shopping for a policy, she advises the prospective purchaser to consider whether the insurance carrier has the financial stability to take on the risk. 

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“For some carriers, the risk is too large, leading them to exit the market,” she said. “For example, we haven’t seen any claims yet for the beneficial ownership filing requirements, but it could result in large claims down the road. We are one of the only carriers that offer coverage for this; however some CPA firms will go ahead and offer these services and assume they are covered.” 

Coach anticipates that claims will be coming in as a result of firms offering services for BOI filing. 

“We don’t know what the claims will look like, but there are specific guidelines that have to be followed, which could result in exorbitant fines assessed against the filer. Clients will be looking to the CPA to pick up the fee or the fine. As far as the market is concerned, some carriers will feel as though it is best for them to non-renew certain policies, and exit the market altogether and downsize to less risky professional services.”

Prospective buyers should look for “premium modifiers” that can lower the cost of a policy. These include claims-free history, continuing education, and various types of “best practices.”

The liability market is softening up a little, according to Stephen Vono, senior vice president at McGowanPro. 

“It’s still somewhat of a hard market in large metropolitan areas,” he said. “A hard market is when there is a lot of claim activity and premiums go up. In a soft market there is less claim activity and premiums go down. It depends on the kind of services that are offered. Cyber is a little on the hard side, but it is beginning to see some softening because insurers have become better at underwriting guidelines in the last few years.”

“You should look for a carrier with an AM Best rating of ‘A’ or better,” said John Raspante, CPA, senior risk manager at McGowanPro. “It’s also best to get a carrier that has been in the space for at least five years. If they’re in it for five years or more, they’re familiar with the types of claims, policy limits, and other factors that might affect the decision.”

“In pricing a policy, they look at a number of factors,” he explained. “These include total revenue, loss history, number of staff, and areas of practice. Always look at ‘outside the policy’ options. If you have a million-dollar policy, legal expenses can exceed that very quickly, so it might be a good idea to get an extra million  just for legal and defense costs. A traditional policy is inside the limit. If you have a $1 million policy, $250,000 in legal fees will reduce the limit to $750,000. So I recommend an outside-the-limit policy to cover legal and defense expenses, to preserve the underlying $1 million. It does cost more, but I recommend a buyer to go for the outside-the-limit addition if the difference in premium is not significant.” 

Although it may not be particularly entertaining, it is important to actually read the policy, Raspante urged. 

“You need to read the policy, especially the endorsements,” he said. “They either weaken or toughen the policy. If it says that in addition to the underlying coverage it will also apply to employment practice, that increases the insurer’s exposure. It may throw in a sublimit for nonprofessional liability exposure that doesn’t cover the full limit — that’s why you need to read the whole policy. When you get close to the end it looks like a lot of legalese, but you have to read the entire document. For example, on the last page there might be a service exclusion for international work, which means that anything outside the U.S. is not covered.”

The panel of experts put together by McGowanPro’s Vono, which includes underwriter Gary Sutherland, Anthony Carolei, the risk manager for Hanover Insurance, and CPA defense attorney Ralph Picardi, recommends the following factors to consider when assessing liability policies:

  • Make sure the professional services definition is as broad as possible.
  • Does the broker or insurance company understand what you do?
  • Consider if your limits are sufficient, as legal defense costs are going up.
  • Is your deductible appropriate? If you have a large deductible, will you struggle to pay that deductible in the event of a claim?
  • Does the broker or insurance company provide supportive risk management services and education? 
  • Do not rely on your professional liability insurance policy to be the coverage for all your exposure. There are exposures that are better covered on a separate standalone insurance policy.  Separate directors & officers liability insurance and separate cyber liability, employment practices liability, commercial crime, and fiduciary liability policies should be considered to cover all exposures for your firm.

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Accounting

IAASB tweaks standards on working with outside experts

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The International Auditing and Assurance Standards Board is proposing to tailor some of its standards to align with recent additions to the International Ethics Standards Board for Accountants’ International Code of Ethics for Professional Accountants when it comes to using the work of an external expert.

The proposed narrow-scope amendments involve minor changes to several IAASB standards:

  • ISA 620, Using the Work of an Auditor’s Expert;
  • ISRE 2400 (Revised), Engagements to Review Historical Financial Statements;
  • ISAE 3000 (Revised), Assurance Engagements Other than Audits or Reviews of Historical Financial Information;
  • ISRS 4400 (Revised), Agreed-upon Procedures Engagements.

The IAASB is asking for comments via a digital response template that can be found on the IAASB website by July 24, 2025.

In December 2023, the IESBA approved an exposure draft for proposed revisions to the IESBA’s Code of Ethics related to using the work of an external expert. The proposals included three new sections to the Code of Ethics, including provisions for professional accountants in public practice; professional accountants in business and sustainability assurance practitioners. The IESBA approved the provisions on using the work of an external expert at its December 2024 meeting, establishing an ethical framework to guide accountants and sustainability assurance practitioners in evaluating whether an external expert has the necessary competence, capabilities and objectivity to use their work, as well as provisions on applying the Ethics Code’s conceptual framework when using the work of an outside expert.  

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Accounting

Tariffs will hit low-income Americans harder than richest, report says

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President Donald Trump’s tariffs would effectively cause a tax increase for low-income families that is more than three times higher than what wealthier Americans would pay, according to an analysis from the Institute on Taxation and Economic Policy.

The report from the progressive think tank outlined the outcomes for Americans of all backgrounds if the tariffs currently in effect remain in place next year. Those making $28,600 or less would have to spend 6.2% more of their income due to higher prices, while the richest Americans with income of at least $914,900 are expected to spend 1.7% more. Middle-income families making between $55,100 and $94,100 would pay 5% more of their earnings. 

Trump has imposed the steepest U.S. duties in more than a century, including a 145% tariff on many products from China, a 25% rate on most imports from Canada and Mexico, duties on some sectors such as steel and aluminum and a baseline 10% tariff on the rest of the country’s trading partners. He suspended higher, customized tariffs on most countries for 90 days.

Economists have warned that costs from tariff increases would ultimately be passed on to U.S. consumers. And while prices will rise for everyone, lower-income families are expected to lose a larger portion of their budgets because they tend to spend more of their earnings on goods, including food and other necessities, compared to wealthier individuals.

Food prices could rise by 2.6% in the short run due to tariffs, according to an estimate from the Yale Budget Lab. Among all goods impacted, consumers are expected to face the steepest price hikes for clothing at 64%, the report showed. 

The Yale Budget Lab projected that the tariffs would result in a loss of $4,700 a year on average for American households.

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Accounting

At Schellman, AI reshapes a firm’s staffing needs

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Artificial intelligence is just getting started in the accounting world, but it is already helping firms like technology specialist Schellman do more things with fewer people, allowing the firm to scale back hiring and reduce headcount in certain areas through natural attrition. 

Schellman CEO Avani Desai said there have definitely been some shifts in headcount at the Top 100 Firm, though she stressed it was nothing dramatic, as it mostly reflects natural attrition combined with being more selective with hiring. She said the firm has already made an internal decision to not reduce headcount in force, as that just indicates they didn’t hire properly the first time. 

“It hasn’t been about reducing roles but evolving how we do work, so there wasn’t one specific date where we ‘started’ the reduction. It’s been more case by case. We’ve held back on refilling certain roles when we saw opportunities to streamline, especially with the use of new technologies like AI,” she said. 

One area where the firm has found such opportunities has been in the testing of certain cybersecurity controls, particularly within the SOC framework. The firm examined all the controls it tests on the service side and asked which ones require human judgment or deep expertise. The answer was a lot of them. But for the ones that don’t, AI algorithms have been able to significantly lighten the load. 

“[If] we don’t refill a role, it’s because the need actually has changed, or the process has improved so significantly [that] the workload is lighter or shared across the smarter system. So that’s what’s happening,” said Desai. 

Outside of client services like SOC control testing and reporting, the firm has found efficiencies in administrative functions as well as certain internal operational processes. On the latter point, Desai noted that Schellman’s engineers, including the chief information officer, have been using AI to help develop code, which means they’re not relying as much on outside expertise on the internal service delivery side of things. There are still people in the development process, but their roles are changing: They’re writing less code, and doing more reviewing of code before it gets pushed into production, saving time and creating efficiencies. 

“The best way for me to say this is, to us, this has been intentional. We paused hiring in a few areas where we saw overlaps, where technology was really working,” said Desai.

However, even in an age awash with AI, Schellman acknowledges there are certain jobs that need a human, at least for now. For example, the firm does assessments for the FedRAMP program, which is needed for cloud service providers to contract with certain government agencies. These assessments, even in the most stable of times, can be long and complex engagements, to say nothing of the less predictable nature of the current government. As such, it does not make as much sense to reduce human staff in this area. 

“The way it is right now for us to do FedRAMP engagements, it’s a very manual process. There’s a lot of back and forth between us and a third party, the government, and we don’t see a lot of overall application or technology help… We’re in the federal space and you can imagine, [with] what’s going on right now, there’s a big changing market condition for clients and their pricing pressure,” said Desai. 

As Schellman reduces staff levels in some places, it is increasing them in others. Desai said the firm is actively hiring in certain areas. In particular, it’s adding staff in technical cybersecurity (e.g., penetration testers), the aforementioned FedRAMP engagements, AI assessment (in line with recently becoming an ISO 42001 certification body) and in some client-facing roles like marketing and sales. 

“So, to me, this isn’t about doing more with less … It’s about doing more of the right things with the right people,” said Desai. 

While these moves have resulted in savings, she said that was never really the point, so whatever the firm has saved from staffing efficiencies it has reinvested in its tech stack to build its service line further. When asked for an example, she said the firm would like to focus more on penetration testing by building a SaaS tool for it. While Schellman has a proof of concept developed, she noted it would take a lot of money and time to deploy a full solution — both of which the firm now has more of because of its efficiency moves. 

“What is the ‘why’ behind these decisions? The ‘why’ for us isn’t what I think you traditionally see, which is ‘We need to get profitability high. We need to have less people do more things.’ That’s not what it is like,” said Desai. “I want to be able to focus on quality. And the only way I think I can focus on quality is if my people are not focusing on things that don’t matter … I feel like I’m in a much better place because the smart people that I’ve hired are working on the riskiest and most complicated things.”

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