- Over 70% of the claims notified to Aon are due to some form of alleged negligence.
- Read our top tips on reducing your chances of receiving a negligence claim.
- Aon Professional Indemnity Insurance helps to provide assistance in the instance of a claim made against you.
As a chartered accountant, your risk exposure increases the very moment you start offering any professional advice. Maintaining “adequate” professional indemnity (PI) insurance as a chartered accountant is not just vital, but is also a condition of your practising licence.
In Australia, all professional accountants are expected to comply with Australian Professional and Ethical Standards (APES) 110 unless they are prevented from doing so by applicable laws or regulations. This code highlights the responsibility for accountants to act in the public interest and adhere to the fundamental principles in all their engagements.
More often than not, accountants comply with the code of conduct. However, no-one is infallible and whether through error, omission or breach of professional duty, problems can arise leading to your clients seeking compensation. This is where PI Insurance can provide further value.
More than 70% of claims notified to Aon are due to some form of alleged “negligence”. This is by far the most common claim type and can often arise by third parties alleging that an accountant has breached their duty of care, which has ultimately resulted in the third party suffering a financial loss.
Negligence Case Studies
Chartered accountants are often required to lodge documents on behalf of their clients to the ATO. Failure to do this correctly or in a timely manner can be costly. An example of this was an accountant, who from time to time failed to meet PAYG, BAS and superannuation remittance obligations to the ATO within the required time. Consequently, the client suffered a loss on additional and unnecessary ATO interest charges/penalties which ultimately resulted in a PI claim exceeding $100k.
Tax implication – trusts:
Providing advice on trusts and estates is another area in which PI claims are prominent. This is often due to the complexity of the regulatory landscape. For example, an accountant advised their client that money remaining in a trust did not attract any tax liability and that only beneficiaries were subject to tax implication on the amount distributed. The ATO sought tax payable by the trust along with general interest charges. The accountant’s negligent advice on distribution to beneficiaries resulted in a claim for $45k.
Tips on avoiding negligence
To reduce the chances of an alleged negligence claim against your practice, here are some strategies to assist:
- Adherence to APES 305, which mandates that practitioners document and communicate terms of engagement to their clients.
- Follow APES 325 Risk Management Frameworks. This sets out mandatory requirements and guidance to establish and maintain a risk management framework in respect of the provision of quality and ethical professional services of an accounting practice.
- Have a document management system in place to track, manage and store all communication, including records, files, notes and emails.
- Ensure your PI coverage is appropriate for the services that you provide and notify your insurance broker immediately should you become aware of any circumstance that could lead to a loss.
To learn more about professional indemnity call 1800 688 582, visit aon.com.au/ca or email [email protected]
*Conditions apply. For full policy wording please contact 1800 688 582. © 2017 Aon Risk Services Australia Limited | ABN 17 000 434 720 | AFSL 241141. This information is general in nature and should not be relied on as advice (personal or otherwise) because your personal needs, objectives and financial situation have not been considered. So before deciding whether a particular product is right for you, please consider the relevant Product Disclosure Statement or contact us to speak to an adviser.