Accountants at risk of ineffective insurance coverage

This article was current at the time of publication.

Ensuring professional integrity and safeguarding against potential legal challenges are paramount concerns for public practitioners.

One crucial instrument designed to mitigate liability in civil matters for accountants is CPA Australia’s Professional Standards Scheme.

The Scheme serves as a protective measure, particularly for public practitioners, enabling them to navigate potential legal disputes with greater confidence. However, it can only be effective if disclosure requirements are carried out in full.

23 per cent of members fail to display

Jodie Smith FCPA, CPA Australia’s Best Practice Program Manager, Non-Assurance Services, underscores the significance of proper disclosure for Scheme coverage. Smith reveals that a concerning 23 per cent of practitioners assessed in 2023 failed to meet documentation requirements, potentially jeopardising their coverage. 

Members are required to display the notification of limited liability statement: “Liability limited by a scheme approved under Professional Standards Legislation” in at least 8 point Times New Roman on all promotional material as suggested by the Professional Standards Council. This should be included on letterheads, invoices, websites, brochures and promotional materials. 

“While the Scheme caps liability in a civil claim for CPA Australia members, they must have the correct disclosures on any client-facing documents,” emphasises Smith. 

“This a key part of compliance. Without it, a court may rule that they are not eligible to participate or to have liability limited.”

The result can be that the practitioner does not have sufficient insurance cover if the issue is tested in court and may be liable for the gap, adds Smith. For some public practitioners this may mean severe financial hardship. 

About the Professional Standards Scheme

Australian-based public practitioners can take part in the Professional Standards Scheme if they conduct public accounting services, hold a CPA or FCPA designation and have a current limited or full Public Practice Certificate. 

In fact, unless they have an exemption, participation in the Scheme is compulsory if they meet the eligibility criteria, says Melissa Read FCPA, Head of Professional Standards for CPA Australia. 

It's essential to understand that while the Scheme doesn't replace insurance, it acts as a legal mechanism to limit civil claims up to the level of Professional Indemnity Insurance required for public practitioners.

Under the Scheme, participants' occupational liability for damages resulting from legal action is capped at the minimum amount of coverage the practitioner is required to have. Public practitioners must maintain the appropriate level of Professional Indemnity Insurance tailored to their services and practice income, ensuring comprehensive coverage.

Enhancing professional standards 

Read says the objective of the Scheme is not solely to limit the liability of practitioners. Beyond liability limitation, the Professional Standards Scheme aims to elevate professional standards within the accounting profession. 

Australian-based public practitioners become eligible to participate in the Scheme by complying with CPA Australia’s Constitution, By-Laws and all applicable APESB standards, as well as taking part  in the CPA Australia Best Practice Program when selected.

There is also a requirement for public practitioners to undertake 120 hours of continuing professional development (CPD) to maintain professional competencies.

If you're a CPA Australia public practitioner, you can review your eligibility to participate with the 2019-2024 Scheme Guidance Tool.

It can also help you understand your obligations and risk profile relating to civil claims.

Navigating risks effectively 

To bolster their defence against legal challenges, public practitioners must implement robust risk management frameworks informed by APES 325: Risk Management for Firms. 

Remember, that documentation is also key when it comes to onboarding new clients or updating accountants’ engagement terms of service for an existing client. 

Due diligence in all matters, including paperwork, is key to a professional and successful practice.