Risk management for accounting firms: accuracy in output and advice

Published On: May 18th, 2021Categories: Commercial Insurance, Risk Management

Accuracy in output and advice are the cornerstone components of the accounting profession.

The three biggest liability risks facing accountants are:

We covered data security and protecting facilities and property from damage. Today we will focus on accuracy in output and advice.

The professional need for accuracy in record keeping dates back to pre-2000 BC while society still used the barter system. For trade to function effectively, it was essential to keep a record of chickens traded in one direction today for crops harvested in the future. 

As time moved on, the complications bookkeepers and accountants faced continued to expand with single then double-entry ledger systems. The profession continued to evolve over the years, growing more layered with keeping records of corporations.

As a result of the American railroad industry, the evolution of accounting continued to expand beyond record keeping to an advice-oriented and analysis-based profession. Distribution networks, fare and rating analysis, operating ratios, financial reports, and more provided the railroad operators what they needed to make informed decisions.

The next giant leap for the profession was the introduction of the federal income tax system. As the tax system has continued to grow in complication, both personally and for corporations, the knowledge and advice of a trained professional has never been more critical for the success or demise of achieving financial goals and targets.

The significance of accuracy in advice and output for Accounting professionals

Consider the initial recordkeeping example above. If a record of three chickens today for a basket of your crop at harvest is lost, damaged, or recorded with inaccuracy, the damage is minor. Likely the two parties would still transact as their initial agreement stated. At worst, a little dispute would arise. Most likely, the highest cost to the recordkeeper would be their reputation and credibility in the community. While a hit on credibility may spell disaster today for a local accounting operation, it’s likely the recordkeeper was one of only a few, or even the only one, who could complete the record-keeping work.

As the accounting landscape broadened and record-keeping evolved to exponentially larger numbers, it was increasingly important for accounting professionals to be accurate in their work. Complexity grew as individuals and corporations sought competent advice to benefit from an increasingly complicated tax system making the cost of an error or mistake very significant. 

Mitigating and transferring the risk of inaccurate advice or wrong output

While it is never possible to eliminate human error, every Accounting professional can take steps to reduce their risk.

Joining and participating in a Professional Association

Being part of a professional association provides the professional both a reliable source of pertinent information and a network of industry peers. Being surrounded by like-minded individuals committed to delivering excellence elevates everyone.

Focusing on a niche or focus area

Those who try to specialize in too much end up specializing in nothing. Knowing a little about many different areas of accounting and being willing to offer services and advice about all of them increases the odds of getting it wrong. Narrowing a focus may be difficult from a financial perspective, but being known as THE go-to person in a specific niche can pay big dividends in the long run.

Completing courses, reading articles, and completing continuing education credits

The accounting profession requires one always to be learning. As federal and provincial tax systems change, as technology changes, as ways in which financial data is reported alters, the professional accountant must do their best to keep abreast of it all. 

Leverage technology but don’t rely on technology as a substitute for your insight

Accounting and bookkeeping technology has evolved drastically over the years. 

Transfer risk through a high-quality Professional Errors & Omissions program designed for Accountants and Bookkeepers.

Protecting financial viability and reputation due to an error is the purpose of an Accountant’s Errors & Omissions (E&O) policy. While there is no way to protect yourself entirely and your practice from a malpractice lawsuit, an E&O policy is there to transfer the financial impact on yourself and your operation.

Reviewing your risk management practices from time to time is an excellent opportunity to not only mitigate risks in your business; it also opens opportunities for new efficiencies and processes to improve how your company operates. 

Should you have any questions, we are happy to discuss them with you in more detail.

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