At Arlington we specialise in Professional Indemnity insurance for Accountants and deal with all types of firms, ranging from sole practitioners to businesses with 20 partners or more. Here, we look at the importance of documentation in not only preventing claims, but also in responding to claims should any allegations be made against a firm.
5 simple ways for Accountants to protect themselves from having PI Insurance claims brought against them.
- Have a letter of engagement: your letter of engagement is crucial and will outline the scope of professional accountancy services you provide (and those you won’t). Ensure that you have a copy on file that has been signed by you and your end client. Don’t rely on the fact that you may have dealt with your client for 30 years without a letter of engagement and ‘there’s never been a problem’. Ensure that letters of engagement are regularly reviewed, updated and reissued if necessary should there be any changes to either the name of your practice or the scope of services you are providing/offering. The members’ area of the ICAEW website can provide samples of such letters.
- Service creep: be careful of delivering more than you are engaged to do without reviewing or amending your letter of engagement with your client. For example, if you are undertaking bookkeeping and payroll services, be clear to your end client you are not providing full accountancy services. It can lead to issues if a claim arises. We are currently dealing with a claim where an accountant was retained by a charity to undertake an annual Independent Examination. However, the charity understood this to be akin to an audit, and misappropriation of the charity’s funds was missed. Therefore ensure that your client knows and fully understands the extent of your accountancy role.
- Keep contemporaneous notes: keeping file notes of client interactions is so important, particularly phone notes or meeting notes. Ensure that your clients are given a copy of any meeting notes that document what was discussed, advice given and any recommendations made. PI claims usually arise years several years after professional advice was given and courts will struggle to side with the accountant if there are no documented file notes.
- Include a limitation of liability in your letter of engagement – ensure this doesn’t exceed your limit of PI cover and obtain independent legal advice if needed.
- Third party engagements: accountants often have relationships with third parties such as financial planners and tax advisers etc. Ensure that these parties also issue a letter of engagement with your client that clearly distinguishes the separate relationship and responsibilities. Ensure that your letter of engagement excludes advice performed by any third party specialist advisors.