Key Takeaways
1. Why is cyber security so critical for accounting firms?
Accounting firms handle highly sensitive financial and personal client data, making them prime targets for cyberattacks. Strong cyber security safeguards not only protect against breaches but also ensure compliance with strict regulations and maintain client trust, which is the foundation of long-term business relationships.
2. What steps should accounting firms take to manage cyber security risks?
Effective cyber security requires a structured approach that includes performing a risk assessment, developing clear security policies, training staff on phishing and password hygiene, securing remote work, and monitoring vendor risks. Adding cyber insurance and creating an incident response plan further ensures firms are prepared for both prevention and recovery.
3. Which tools and software features are essential for accountants’ cyber security?
Firms should leverage tools such as firewalls, endpoint protection, password managers, and data loss prevention systems. Additionally, practice management software must include critical security features like trusted hosting providers, strong data encryption, multi-factor authentication, compliance certifications, secure backups, and payment processing protections to keep sensitive data safe.
Mastering the Fundamentals of Cyber Security for Accounting Firms
We’ve all heard the old adage, “an ounce of prevention is worth a pound of cure.” When it comes to cyber security, this couldn’t be truer — especially for our profession. The sensitive nature of client data, coupled with the increasing sophistication of cyber threats, puts accounting firms in a unique position. We know firsthand how protecting sensitive information isn’t merely an IT concern. It’s essential from a risk perspective, and fundamental to forming strong client relationships and operational stability.
Here’s the silver lining: with thoughtful planning and the right approach, cyber security becomes a natural extension of your practice management strategy rather than another complicated task on your plate.
Who Will Benefit From This Guide
In this guide, we share an overview of major considerations for cyber security. However, it’s important to note that this information is specifically curated for those of us who are operational and administrative professionals. While CPAs and staff accountants may also find this information valuable for general office security, it is not intended to be a substitute for accounting professional standards related to client engagements. The cyber security risk management framework provided by the American Institute of Certified Public Accountants as part of its System and Organization Controls for Cybersecurity guidance is an excellent alternate resource for licensed professionals.
What Is Cyber Security for Accountants and Why Does It Matter?
Though many assume cyber security belongs solely to the IT department, it actually touches many aspects of your practice, directly impacting your ability to maintain client trust and keep daily workflows running smoothly.
Consider this all-too-common scenario: tax season is at its peak. Deadlines loom large. Your team is working at maximum capacity. Then, without warning, your firm experiences a cyberattack. Client tax returns, payroll information, and confidential business records become exposed. Systems freeze. Operations grind to a halt. Beyond the immediate crisis lies something even more significant — a potential breach of the trust your clients have placed in your firm.
In moments like these, the importance of strong cyber security becomes crystal clear.
Research shows a sobering reality: accounting and finance firms face 30% higher risk of becoming victims of a cyberattack compared to other industries. Given the volume of personal and financial data handled daily, it’s no wonder accounting firms are prime targets for cyberattacks.
That’s why a strong cyber security approach is so important. Comprehensive cyber security strategies protect three fundamental pillars of your accounting practice:
Trust: When clients share sensitive financial details, they place extraordinary confidence in your firm. A security breach doesn’t just compromise data; it’s a direct hit to hard-earned client confidence.
Business Continuity: Effective cyberattacks halt daily operations. Smart security measures allow your team to maintain client service even during challenging circumstances.
Compliance: Accounting firms must adhere to strict data protection regulations. Security lapses can trigger penalties that impact your bottom line and reputation. Let’s take a look at some of the key regulations that may directly impact your firm’s operations.
Regulations That May Impact Your Firm
Accounting firms in the United States must adhere to several key cybersecurity regulations to protect client data and maintain compliance. The Gramm-Leach-Bliley Act (GLBA) mandates that financial institutions, including CPA firms offering services like tax preparation and financial planning, develop and maintain comprehensive information security programs to safeguard customer information.
The Federal Trade Commission (FTC) Safeguards Rule, updated in 2021, builds on this foundation by requiring specific administrative, technical, and physical safeguards to protect customer data.
Additionally, if your firm accepts credit card payments, the Payment Card Industry Data Security Standard (PCI DSS) applies, enforcing specific security measures to protect cardholder information.
Lastly, state data breach notification laws may also play a crucial role in your compliance framework. These regulations obligate firms to inform affected individuals and, in some cases, state authorities about security breaches involving personal information. The California Consumer Privacy Act (CCPA) is a notable example, imposing stringent data protection and breach notification requirements on businesses handling California residents’ data.
Cyber Security Risk Assessment Checklist
Before implementing security measures, it’s important to understand where exactly your firm stands today. By assessing potential vulnerabilities and understanding the risks specific to your firm, you can better allocate resources and build stronger defenses. We’ve seen how this critical first step often makes the difference between effective and ineffective security strategies.
Here’s a step-by-step checklist to help you evaluate your firm’s security posture:
- Catalog Sensitive Data: Begin by identifying all sensitive data within your firm. This includes client financial records, tax documents, payroll data, and any internal communications. Securing data starts with knowing where it lives.
- Identify Potential Threats: Understand the specific risks most likely to affect your firm. Phishing emails might trick staff into revealing login credentials, while ransomware could lock up your systems until payment. Recognizing how these attacks typically unfold helps your team spot warning signs early.
- Assess Existing Security Measures: What protections do you already have in place? Firewalls? Antivirus solutions? Encryption tools? Multi-factor authentication? Are they regularly updated and tested? Identifying gaps in your current setup is key to strengthening your defenses.
- Prioritize Risks Based on Likelihood and Impact: Not all risks are equal. Once you’ve mapped out potential threats, focus your attention on those most likely to affect your firm and those that would have the most significant impact. This targeted approach makes the best use of your resources.
- Evaluate Vendor and Third-Party Risks: We understand the complex vendor ecosystem that accounting practices navigate daily. From cloud storage to specialized tax software, we’ve seen how these essential relationships can become your greatest strength—or your most vulnerable point—depending on how they’re managed.
With a clear picture of your risks in place, let’s now dig a little deeper into some key cyber security best practices to shore up your defenses.
Approaches and Best Practices for Cyber Security Risk Management
Creating a security strategy protects both your accounting practice and clients from increasingly sophisticated threats. This requires combining preventative measures, technology solutions, and clear policies that work together to minimize risk while supporting operational goals. Importantly, your cyber security strategy should also include provisions for professional liability insurance — a vital backup if defenses fail.
Here’s how to build a practical security approach:
1. Cyber Security Policies and Procedures
To establish a solid foundation, your firm should have clear, comprehensive cyber security policies. These policies should outline protocols for data access, storage, and sharing, as well as detailed incident response procedures. These guidelines ensure that security is not left to interpretation.
Cyber security policies are often part of a broader information security policy. When it comes to information security, large firms in particular may fall under the purview of the FTC’s Safeguard Rule. While many accounting practices won’t need to answer to the FTC, it’s a good idea to follow their guidance as much as possible.
Well-crafted policies signal to clients and insurers alike that your firm prioritizes data protection — something that goes a long way in maintaining client relationships and managing risk.
2. Comprehensive Cyber Insurance Coverage
Even the strongest security measures can’t guarantee that an attack won’t happen. This is where cyber insurance becomes invaluable, helping protect your firm from the financial fallout of a breach.
Key coverages to consider include:
● Privacy Event Expense Coverage: This reimburses your firm for the costs associated with a data breach, including notifications to affected parties, credit monitoring services for clients, and legal fees to address any regulatory concerns.
● Network Damage Claim Coverage: This protects you against claims made by third parties whose networks or data may have been impacted by a breach originating from your firm’s systems.
● First-Party Coverage: This helps replace lost income and covers the costs of getting your practice back up and running after an attack.
● Regulatory Proceedings and Fines: This coverage addresses the costs of legal defense and any fines incurred due to non-compliance with data protection regulations.
Having the right coverage means that if something does go wrong, your firm has the financial support to recover quickly.
3. Employee Training and Awareness
Your team members — the same dedicated professionals working late during tax season — are also your first line of defense against cyber threats. No matter how sophisticated your technology, it’s the human connection that makes or breaks your security success. Training employees to recognize and respond to potential threats like phishing emails, social engineering, and suspicious links can significantly reduce the risk of a breach.
Training should be an ongoing process, not a one-time training event and should include educating staff on:
● Phishing and Social Engineering Attacks: Run realistic phishing simulations to help employees recognize and respond appropriately to suspicious emails and messages.
● Secure File Sharing: Educate your team on how to securely send and receive documents, especially when sharing financial records or tax returns. Recommend encrypted file-sharing systems or client portals that prevent unauthorized access.
● Password Hygiene: Require strong, unique passwords, and implement password managers where appropriate. Help everyone understand why password reuse across multiple sites creates unnecessary vulnerabilities.
Nurture a culture of security awareness, where staff members feel encouraged to pause and verify any suspicious activity before taking action. Building this security-minded culture makes a measurable difference in preventing breaches.
4. Secure Remote Work Practices
With accounting teams increasingly working outside traditional offices, securing network access has become particularly important.
Focus on these practical measures:
● Virtual Private Networks (VPNs): Implement virtual private networks to encrypt internet traffic, especially when connecting from public Wi-Fi or home networks.
● Remote Wipe Capabilities: Make sure devices can be remotely wiped if lost or stolen to prevent unauthorized access to sensitive data.
5. Third-Party Vendor Management
Many accounting firms rely on third-party vendors for services such as cloud storage, tax software, and payroll processing. While these vendors offer essential services, they also present an additional layer of risk. Make sure you have a solid understanding of their security protocols, such as the security details we provide for our solution.
Consider:
● Cyber Insurance Requirements: Look into whether third-party providers offer adequate cyber insurance coverage and confirm that their policies include coverage for data breaches.
● Performance Assessments: Regularly review the security practices of your third-party vendors. Look into whether they continue to follow the appropriate guidelines and keep them accountable for any lapses in their systems.
Since third-party relationships often provide potential entry points for attackers, carefully vetting and monitoring these partnerships is simply good business practice.
6. Ongoing Monitoring and Auditing
Routine vulnerability assessments and penetration testing help identify weaknesses before attackers can exploit them. Continuous monitoring of your systems and network can also help track unusual or suspicious network activity in real time.
Firms are recommended to implement:
● Penetration Testing: Schedule regular penetration tests to simulate cyberattacks and assess how well your systems stand up to real-world threats.
● 24/7 Network Monitoring: Implement network monitoring tools to detect unusual behavior or unauthorized access attempts.
Regular testing finds and fixes security gaps before they lead to serious incidents.
7. Developing a Cyber Security Incident Response Plan
Even with the best preventative measures, we all face cyber threats. We’ve found that a well-prepared Incident Response Plan becomes your firm’s lifeline during those stressful moments, enabling you and your team to act swiftly and effectively when challenges arise.
This plan should include:
● Clear Roles and Responsibilities: Identify team members who will lead during security incidents and specify their roles.
● Step-by-Step Procedures: Outline the steps to contain and assess the breach, including notification procedures and communication strategies.
● Post-Incident Analysis: Once the situation is under control, conduct a thorough review to understand what happened, what worked well, and where improvements can be made.
While sound policies and practices form your security foundation, having the right tools completes your protection strategy. These tools not only streamline security management but also provide essential layers of protection that allow you to operate with confidence.
Now, let’s explore the key features that all of our cyber security toolkits should include.
Tools that Simplify Cyber Security for Accountants
You’re already juggling countless responsibilities. That’s why protecting client data should involve tools that work with you, not against you. The right security technologies fit into your daily workflow with minimum administrative friction while providing robust protection:
Firewalls: First Line of Defense
Firewalls act as a security barrier, controlling which traffic enters and exits your firm’s network. By filtering out harmful data packets while allowing legitimate communication, they help prevent unauthorized access before it even reaches your internal systems.
Endpoint Protection & Antivirus Software
Endpoint protection tools (like CrowdStrike, Sophos, or Bitdefender) offer critical defense for devices such as computers, laptops, and mobile devices, which are often entry points for cybercriminals.
Password Management Tools
With accountants using multiple platforms — client portals, tax software, payroll systems — weak or reused passwords can become a major security risk. Password managers like 1Password, LastPass, and Sticky Password facilitate strong, unique credentials across all systems without complicating daily workflows.
Data Loss Prevention (DLP)
DLP tools monitor how data moves across devices, networks, and cloud platforms to prevent both accidental and deliberate data exposure, making sure sensitive details only travel within authorized channels.
Essential Security Features of Accounting Practice Management Software
Since the onset of the COVID-19 pandemic, accounting firms have faced a staggering rise in cyberattacks — with incidents increasing by 300%. As cyber threats continue to escalate, it’s more important than ever for accounting firms to choose software that not only improves workflow efficiency but also includes built-in security protections.
Here are the seven security features your practice management software must have to mitigate risks and keep your firm’s data secure:
Trusted Hosting Providers
Security begins with your data’s hosting environment. Providers like Amazon AWS are renowned for their infrastructure security, offering services that meet the highest industry standards.
Key benefits include:
● ISO 27001 and SOC 2 compliance, upholding stringent security protocols and adherence to industry best practices.
● Scalable, reliable infrastructure that can grow with your firm’s needs, while maintaining robust security measures.
Choosing a trusted hosting provider lets you know that your firm’s sensitive data is housed in a secure, compliant environment, minimizing the risk of data breaches.
Data Encryption – In Transit and At Rest
We’ve talked a lot about encryption, but what does it really entail when it comes to protecting sensitive data? Encryption serves as a fundamental protection layer, whether the data is being transferred over the network (in transit) or stored on your systems (at rest). With proper encryption, even if data falls into the wrong hands, it remains unreadable and secure.
Key encryption protocols to look for:
● SSL Encryption: Ensures that data being transferred between systems or users is protected, especially during online transactions or communications.
● AES-256 Encryption: A strong, industry-standard encryption algorithm that keeps data securely stored, preventing unauthorized access even if systems are breached.
With these encryption measures, both your firm’s and your clients’ data is protected, no matter where it is or how it’s accessed.
Regular Backups and Redundancy
Data backup and redundancy act as safety nets, providing your firm peace of mind. In the event of a cyberattack or system failure, backups can be the difference between quick recovery and significant downtime.
Look for tools that offer:
● Automated, secure backups stored across multiple geographic locations. This maintains data availability even when one facility experiences problems.
● 30-day retention periods that allow firms to recover data from any point within the last month, offering flexibility in case of data loss.
With reliable backups, your firm maintains continuity and minimizes data loss risks from cyber incidents or system failures.
Strong Authentication, Access Controls & Server Security
Preventing unauthorized access starts with strong authentication and user permissions.
Some key features to look for include:
● 2-Factor Authentication (2FA): Adding a second layer of security by requiring users to provide additional verification beyond just a password.
● Role-based Access Control (RBAC): Limits users to only have access to the data and systems they need for their role, minimizing the risk of insider threats or accidental leaks.
● Audit Trails: Tracks user actions and maintains detailed access records to identify potential security concerns while supporting accountability.
● Server Security: Servers should be running up-to-date operating systems with the latest security patches and monitored 24/7 to quickly identify and address potential threats. Access to server resources should be tightly controlled. For example, Firm360 adheres to the Principle of Least Privilege for their servers, where access is granted strictly on a need-to-know basis, reducing unnecessary exposure to sensitive data and systems.
Compliance and Security Assessments
Periodic security evaluations help stay ahead of potential vulnerabilities while maintaining regulatory compliance.
For example, our company holds the following certifications:
● SOC 2 Type II compliance: Confirms adherence to strict security practices, particularly when handling sensitive client data.
● CSA STAR Level 1 certification: This internationally recognized framework measures and validates cloud service provider security.
Firms that proactively assess their security posture are better prepared to handle potential cyber threats.
Payment Processing Security
For firms handling online payments, it’s important to have secure payment processing systems in place. Look for platforms that integrate with trusted third-party providers like Stripe to certify that all payment data is securely handled. Key security features include PCI DSS compliance which verifies that payment card data is handled in accordance with the Payment Card Industry Data Security Standard, minimizing the risk of fraud or data theft.
Secure Data Exports
Occasionally, firms may need to export data for various reasons. Secure exchange functionality keeps data protected even when it leaves the primary system.
Look for tools that provide:
● Encrypted data exports: Sensitive information remains protected during transfer.
● Flexibility to export client, billing, and document data securely, allowing you to retain control over your data even outside the platform.
These features not only protect data but also align with your priorities of reducing manual work, enhancing collaboration, and streamlining operations.
What To Do if Precautions Fail
Even with robust protections in place, no system is entirely immune to cyber threats. When an incident occurs, how you respond can significantly impact the severity of the breach and the trust your clients place in your firm.
While exact requirements for responding to a breach can vary depending upon the regulations that apply to your firm, here’s an example of common steps to take in the event of a cyber security breach:
Step #1: Inform the Right Parties Immediately
Your first responsibility is transparency. Inform internal stakeholders, including leadership and your IT team, as soon as you identify a breach. Next, reach out to your cyber security insurance provider to ensure you follow their recommended protocols for claims and damage mitigation. Clients whose data may have been compromised should also be notified promptly. Clear, forthright communication makes a tremendous difference — explain what happened, what steps you’re taking to resolve the issue, and what clients can do to protect themselves. This honest approach rebuilds confidence during challenging situations.
Step #2: Contain the Breach
Once the breach has been identified, the next priority is containment. Work closely with your IT team or a third-party security expert to isolate the affected systems and prevent the breach from spreading across your network. For firms using platforms like Firm360, built-in security measures such as segmentation of sensitive data can reduce the scope of the breach and help contain it.
Example: If malware has been detected on a device, immediately disconnect it from the network to prevent further data loss.
Step #3: Assess the Impact
Conduct a thorough investigation to understand the full scope of the breach:
● What data was compromised? Identify which systems and data have been affected. This is where the detailed audit trails and reporting capabilities of platforms like Firm360 can prove invaluable in providing insight during the analysis process.
● How did the breach happen? Understanding the method of attack (e.g., phishing, vulnerability exploitation) will help prevent similar incidents.
● Which vulnerabilities were exploited? Pinpointing weaknesses allows your firm to prioritize remediation and future prevention measures.
An accurate assessment will guide your next steps and shape your recovery strategy.
Step #4: Leverage Cyber Security Insurance
If your professional liability policy includes cyber security protection, now’s the time to use it. This could include costs associated with legal fees, client notifications, and identity theft protection services for affected clients.
Step #5: Document Everything
Throughout the process, keep detailed records of the incident. This documentation serves multiple purposes: regulatory compliance, potential legal proceedings, and future risk management improvement. Your insurance provider will likely require this documentation when processing claims.
Building Security Into Your Practice Management Strategy
It’s safe to say, cyber security is an ongoing commitment. With new threats constantly on the rise, firms that regularly assess risks, implement thoughtful practices, and invest in appropriate security tools will be in the strongest position to protect both client data and trust for the long term. And as someone who maintains the smooth functioning of your firm, you have the power to champion initiatives that safeguard client data.
The security steps you take today lay the foundation for your firm’s reputation and continued success tomorrow.
Additional Resources
Payment Card Industry Data Security Standard
A CPA’s introduction to Cybersecurity (AICPA)
