A Professional Indemnity claim being brought against your accounting firm can significantly damage your reputation – whether the allegations you are facing are proven to be true or not.
Unfortunately, there are a number of situations that can instigate such a claim. The following areas can all pose a risk to your business, and increase your PI exposure:
- Integrity of your employees
- Range of services offered by your firm
- Marketing and communication materials
- Staff and human resources
- Management of client data, company information and resources
- Obligations to fulfil regulatory requirements
In order to ensure the continuing success of your accounting business, it is important to develop a comprehensive risk management strategy. This involves identifying the specific risks your business is exposed to, and taking steps to manage them, such as:
- Accepting the risk
- Avoiding the risk
- Transferring the risk (in part or full)
- Reducing the likelihood of the risk occurring
- Reducing the consequences to your firm if the risk does occur
Risk management plans should be developed based on assessing the current levels of risk exposure and evaluating the benefits that would arise from taking action on the risk. Other considerations that you should think about are the duration of time it will take to implement actions and the budget you have available to allocate to risk management.
The following are some examples of actionable steps that you can take to manage your company’s risk and reduce your exposure to a Professional Liability claim:
- Build a Portfolio of Good Clients: Many accountants find themselves having to service clients that are risky, require a lot of effort, are uncooperative, or argue over fees. These clients not only limit the productivity of your firm, but also increase the chances that you may face legal action in the event that something goes wrong.
- Ensure Business Leaders are Experienced: In order to reduce the likelihood of a Professional Indemnity claim, it’s important to ensure all staff are fully trained. All employees should have up to date knowledge and experience, particularly those in a leadership position. Furthermore, it is vital that trained leaders should never delegate their quality control responsibilities.
- Ensure Professional Practices are Adhered To: While familiarity with a client can improve your dealings with them and increase the effectiveness of your services, excessive familiarity can have a negative impact. Employees should be encouraged to develop a positive relationship with clients, however retain a questioning attitude in order to maintain a high level of professionalism.
- Treat Each Client as an Individual: Applying a standard ‘cookie cutter’ approach to every client can increase the possibility of making a mistake, or even the chance of fraud going undetected. It’s important to ensure you are asking all the right questions and obtaining adequate information from each client to ensure you are carrying our your role to the best of your ability.
- Implement Quality Control Policies and Procedures: Having comprehensive policies and procedures in place should produce high-quality results and decrease the business’ exposure to legal liability. These policies and procedures should be documented in engagement files, detailing how they were applied on the job. This documentation can reduce time spent by peer reviews and ensure compliance with professional standards.
Having appropriate insurance in place can also reduce your risk as a practicing accountant. Speak to Abacus, Australia’s Accounting Insurance specialists, for more information on how you can best protect your firm.
The information contained on this website is for members and prospective members of Abacus Australia Ltd. The information provided is for information purposes of a general nature only and must not be construed or relied upon as advice. Members and prospective members of Abacus Australia Ltd are recommended to obtain their own professional advice specific to their business and circumstances.