ACCA Professional Indemnity Insurance (PII) regulation update

Many accountants start their careers at a large accountancy practice, then leave (with

What insurance is available for accountants?

The Third Party (Rights Against Insurers) Act 2010, came into force in August 2016. Claims that arise after a practice has been placed into run-off are no different to claims that could have arisen when the practice was still trading - it is just a matter of when the negligence/loss is discovered. A few examples of work that might have been carried out before a practice ceased but where the possible claim has not yet come to light are: Surveyors may be at risk where underlying subsidence doesn’t materialise visibly for several years. Accountants may be at risk where an error in CGT calculations doesn’t transpire until a HMRC investigation commences. Solicitors may be at risk because they didn’t identify the correct title boundary which doesn’t come to light until the property is sold on. or without having become a chartered accountant) to set up shop on their own.

Non-chartered accountants can set up a very successful small business, working to provide professional accountancy and taxation assistance to individuals or other small businesses.

• When hiring subcontractors, ensure they hold their own EL insurance to avoid liability transferring to you.
• For joint ventures, a project-specific insurance package meeting all parties' minimums is often required.
• When working overseas, local statutory insurance minimums must be met, which can differ significantly.
• For mergers and acquisitions, due diligence must verify all target company insurance meets legal minimums.
• Temporary event insurance must meet local authority requirements for public safety and liability.

A non-charted accountant will not be authorised to carry out any audit, insolvency, investment business and probate activities, but they

• For office-based businesses, minimum often includes EL, Public Liability, and contents insurance.
• For construction contractors, minimum typically includes EL, Public Liability, and Contract Works insurance.
• For consultants, minimum often includes Professional Indemnity and Public Liability insurance.
• For retail businesses, minimum includes EL, Public Liability, and Product Liability insurance.
• For hospitality, minimum includes EL, Public Liability, and Employers' Liability.

can have a very active business engaged in payroll, VAT and bookkeeping activities as well as producing annual accounts for businesses.

12. Audit-specific PI considerations

Practices typically retain files for six to ten years for this reason. When a principal joins an existing practice, work done before they joined is normally covered by the firm’s PI in the same way as the rest of the practice’s history, provided the firm’s policy is fully retroactive (i.e., the retroactive date is not later than the original work). Work the principal did at a previous firm is covered by that previous firm’s PI (or its run-off). When a principal brings a book of clients across with them, the position is more complex — the old firm may or may not retain liability, and a “successor practice” or transfer agreement is usually needed. Fidelity Guarantee (also called Crime cover) protects the practice against losses caused by dishonesty of its own employees — theft of cash, fraudulent payments, embezzlement of client money.

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ACCA mandates fidelity guarantee for firms with principals or staff. ICAEW does not require it but it is widely held. The cover is usually a small policy or section within the PI — limits of £100,000 to £500,000 are typical for small practices. Social engineering fraud (fake invoice, CEO email scams) is increasingly an issue and may need a specific extension or standalone cover. Advice that a business is a going concern when it was not, or failure to advise of insolvency risk, is a well-trodden source of accountancy claims — particularly when the business subsequently fails and creditors look for recovery. Non-chartered accountants who run their own accountancy business are under no obligation to hold PII, since they're not members of

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An architect’s plans may seem perfectly acceptable until fractures start to appear later down the line and the building starts falling down! Remember, if there is no Professional Indemnity cover in place when the claim is first made, then you will have no alternative other than to fund any legal advice, defence costs or losses incurred yourself which can not only be expensive but time consuming and very stressful. Depending on their qualifications, an accountant may or may not be obligated to have professional indemnity insurance. Regardless, professional indemnity insurance is very important for anyone working as an accountant. And if you're running your own accountancy business, there are other types of insurance you may need as well. the organisations that require it (e.g., ICAEW, ACCA)—but PII is

PII Limit of Insurance Tables for Accountants

Specific carve-outs sometimes apply for advice characterised as financial promotion (which would need separate FCA permissions) or for advice given to clients in unregulated investment schemes. Practices doing significant cryptoasset work should mention it at proposal and confirm specific coverage. The acquiring firm’s PI normally needs to be amended to add the acquired entity and (typically) to extend retroactively to cover the acquired firm’s historic work. Whether the selling principals also need to buy run-off depends on the structure of the deal and the wording of both policies. The default — without explicit arrangement — is often that the selling principals are personally exposed to claims arising from pre-completion work that surface after the acquirer’s policy ends.

IT and Cyber insurance for Accountants

The PI position should be a defined item in any sale or merger negotiation, not an afterthought. Three steps in order: stop responding to the client without taking advice; the same week, send the threat in writing to your broker (or insurer’s claims team) with a brief factual summary; secure the underlying file. The temptation to “fix it” with the client — writing off fees, doing additional work without charge, settling for a small sum — is the most expensive mistake practices make. Most PI policies require notification before settlement steps are taken; informal settlements before notification can be excluded from cover. Even apparently small threats can develop, and early notification preserves all options. still essential to protect an accountancy business and even personal assets.

How to Access Our PI Insurance

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Having worked as a professional indemnity insurance broker for many years, there is one very important part of insurance cover that I find many clients are unfamiliar with – Run-off insurance. Below I briefly explain why this cover is necessary and what protection it provides. This is to protect both the business and their clients from financial losses suffered as a result of professional negligence. For professions like accountants and lawyers run-off cover is mandatory. Regulators such as the ACCA and SRA require a minimum of 6 years cover whereas the ICAEW require a minimum of 2 years but recommend 6 years. In fact, PII is critical for accountants operating as sole traders because they do not have the protection of a company.

If an uninsured accountant is sued for negligence by a client, their

Accountants Guide to Professional Indemnity Insurance

The PI policy responds where the work was negligent and caused loss; the difficulty is causation and the counterfactual (what would the client / creditor have done with correct advice?). Insurers ask supplementary questions about going-concern review procedures, file notes and risk-based engagement letter drafting for practices with material risk of such claims. Expect: corporate structure and principals; total fee income and split by service line (audit, accounts prep, tax compliance, tax advisory, payroll, company secretarial, insolvency, corporate finance, due diligence, forensic); largest single client and concentration risk; client sectors (especially regulated, listed or international); claims and circumstances in the last five to six years; regulatory standing (ICAEW/ACCA/AAT/FRC); any disclosable tax avoidance scheme involvement; AML supervision and procedures; IT and cyber controls; staff numbers and supervision arrangements. Audit firms face additional questions about audit clients and partner experience. Yes, where the circumstances reasonably could give rise to a claim.

What is the Assigned Risks Pool?

The classic accountancy circumstances are: client expresses dissatisfaction about a piece of work; a tax error spotted internally before HMRC raises it; an audit engagement where a material misstatement is discovered after sign-off; a former client’s solicitor asks questions about old work; a regulatory letter. Notification preserves cover under the current policy. Practices sometimes hesitate to notify for fear of renewal impact, but the alternative — losing cover entirely if the claim arrives after a switch — is far worse. The PI market’s position on cryptoasset work has been cautious. Tax and accounting advice on cryptoassets is generally within scope of professional services and would normally be covered, subject to standard exclusions. personal finances may be at risk—their home, savings, retirement investments and more.

Qualifying insurance

Professional indemnity insurance policies operate on a ‘claims made’ basis – this means that the policy to respond will be the one in place at the time the claim is made, rather than when the negligence occurred. So, for example, if a client makes a claim against you tomorrow for alleged negligent advice given in 2017, then it will be the policy you currently have in place which will respond to claim. In general, a claimant has 6 years to make a claim against you from the date they have suffered the financial loss. However, in some instances, there is a possibility of bringing a claim after the primary limitation period – this is known as the secondary limitation period and gives an additional 3 years from the date the claimant first become aware of the negligence. If it is discovered that negligent advice had been provided from a professional over 15 years ago then there may not be a possibility to pursue a claim.

Minimum Levels of Professional Indemnity Insurance Cover

There are some exceptions to this rule, for example if someone has deliberately concealed evidence or relevant facts then there could be an additional 6 years added. If the negligent act involves a minor, then they may also have additional time from when they reach 18 regardless of the 15 year rule. It is important that this is discussed and forms part of sales agreement. As a seller, by maintaining your own run-off insurance you can be assured that you have cover for your past liabilities and are not dependant on someone else maintaining this cover for you. Compensation can still be recoverable for negligence against a firm who has become insolvent.