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As a chartered accountant, you are faced with certain risks – and risk exposure begins as soon as you begin to offer any professional advice. No-one is infallible, and whether through error, omission or breach of professional duty, problems can arise and result in your clients seeking compensation. This is where PI insurance can help to keep you covered.

Claims arise where a party suffers a financial loss and looks to get recompense from its advisers. Allegations that an accountant has been negligent and breached the code of practice (their duty of care) need to be defended, especially where that action is unfounded.

No-one is infallible, and whether through error, omission or breach of professional duty, problems can arise and can result in your clients seeking compensation. This is where PI insurance can help to keep you covered.

In New Zealand, all professional accountants are expected to comply with Chartered Accountants ANZ’s Code of Ethics, 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 to adhere to the fundamental principles in all their engagements. 

Obtaining adequate PI insurance as a chartered accountant is a requirement. Below are some examples of negligence case studies that highlight the various types of claims Aon may receive from accountants:

Trustee issues

* Acting as trustees can result in a large number of claims. The issues can involve unhappy beneficiaries who believe the trustee has breached their fiduciary obligations, which lead to claims for negligence. In one example, an accountant released funds to repay business loans without obtaining the shareholders’ approval, leading to a significant claim for $500,000.

Tax issues

Numerous issues arise out of the incorrect treatment of tax or late filing – a few examples follow: 

* An accountant completed his client’s tax return late and insufficient provisional tax was paid. The client’s claim cost insurers $220,000.

* An accountant relied on a list supplied by the Inland Revenue Department (IRD) that stated his client’s companies were GST registered. The information was incorrect, GST was owed and penalty interest was claimed. The cost to insurers was $84,000.

* An accountant made a mistake in claiming GST on a property sale when the transaction should have been zero rated. The client’s claim was for GST paid in error, which cost insurers $100,000. ·       Providing advice on the tax consequences of business and property matters can result in significant claims. For example, an accountant advised their client on the tax situation for the sale of land for development. The advice was incorrect and as a result, the GST return was also incorrect. The client claimed for losses as a result of the increased tax burden. The claimed loss was greater than $250,000. 

To reduce the chances of an alleged negligence claim against your practice, use a document management system to track, manage and store all communications, including records, files, notes and emails. 

Ensure your PI coverage is appropriate for the services you provide and notify your insurance broker immediately should you become aware of any circumstance that could lead to a loss.   

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