Accountants offer their professional advice to their clients in what is known as “in good faith”. The understanding is that the advice they give their clients is for the clients to accept or reject and the decision and responsibility for taking the decision lies with the client only. However, of late, the authorities in the UK and even here in Australia are questioning this assumption, and legislations are either in place already or in the offing to impose fines on the accountants as well. In particular, tax advisors who help their clients evade taxes are expected to be fined up to AU$550,000! The accountants have to choose a good accountant professional indemnity insurance if they have to protect their interests and not suffer a loss.
Understand the Coverage Details
Accountants are already quite informed in matters relating to finance and insurance. However, it is essential that they study the policy terms in detail and understand the situations that get covered under the policy. A good cover would include almost all the legitimate professional services you are rendering your client. As a Chartered Accountant, you might be called upon to provide a range of services. These will include the normal accounting practices, advice on investments, auditing of the client’s income and expenditure, accounts books and so on. In addition, the client may seek advice on tax-related issues, including the recommendations on saving tax.
Fine Line to Distinguish What is Wrong Advice
The penalties being proposed as described above, aim to make a distinction between tax saving, tax avoidance and tax evasion. The last is the most damaging as far as the accounting professional in concerned. The accountant professional indemnity insurance aims at protecting the professional if the tax authorities claim that the offending tax payer relied on the professional advice given by the accountant and therefore, he or she also becomes liable to be penalised. Under such situations, the accountant can claim through the policy any expenses incurred in fighting the authorities legally.
Trust Administrators Also At Risk
Another area that comes under discussion relates to the role the accountants play as trustees or executors of estates of their clients. Here again, they try and offer their professional services in the best interest of their clients. But there are many stakeholders in such estates who may feel aggrieved over the affairs of the estates or any investment decisions made. These persons go to court and drag the accountant also into the litigation process. The accountant professional indemnity insurance is aimed at giving protection in such cases also.
Limitations and Exclusions
The professionals have to also understand what all they can claim and what cannot be included under the policy cover, before signing up and paying the premium. In most cases, even after fighting the penalty or the legal issues by engaging the professional services of lawyers, if the penalty becomes payable, then the insurance may not cover the payment. It will be restricted to reimbursing the professional fees paid only.
If professionals face difficulties while providing normal service to their customers and face litigation or other penal actions, they must have a proper insurance cover against such eventualities.