One of the most common types of insurance for accountants is tax investigation insurance because of the considerable professional fees that their clients face during a tax audit. However, accounting firms must not overlook the importance of cyber insurance to protect the business and its reputation from expenses associated to data breach.

Accounting firms face the risk of cyber attacks because they are privy to confidential, personal and financial information of their corporate clients. The information is of immense importance to hackers. Most accounting firms have cyber protection against theft of information but not the sources of information that leaves the firm exposed to lawsuits.

A California-based CPA firm discovered the importance of cyber insurance the hard way. Last August 2016, their data system was breached by hackers that filed 45 fraudulent tax returns using their client’s data. The CPA firm immediately communicated with the affected clients and implemented the necessary procedures to minimize the damages.

The CPA firm did not reveal the total costs incurred resulting from the event; however, experts estimate that a data breach can cost an average of $221 for every compromised record. It is possible that the firm lost about $10,000 because of the data breach. The amount is not very significant for the CPA firm but the reputational loss has certainly made an impact.

CPA firms must not wait for hackers to breach their data system. They have to be proactive in taking the necessary steps for their protection and that of their clients to eliminate all types of losses. Implementation of cyber security measures must start from the firm’s senior accountants and managers. They have to lead by example to ensure awareness of cyber security requirements. Data systems and software must always be tested and updated to eliminate any flaws that will allow cyber attacks.

Cost effective protection and assistance is provided by accountant insurance against any substantial losses in case the government revenue agency decides to conduct a tax audit on one of the clients.  Tax investigation processes, audit and enquiry are very prevalent nowadays and insurance is the most effective mechanism to alleviate the substantial economic effects.