Accountants: Top 5 Claims Risks

As one of the leading insurance brokers for accountants professional indemnity and cyber insurance, Howden has a wealth of information on claims trends. In this briefing note we take a look at five of the key areas of risk that we see from the Accountancy sector that will continue into 2022:-

1. Audit

This continues to be an area that attracts a huge amount of attention. High profile cases such as Carillion, Patisserie Valerie and Greensill have highlighted considerable risks. If an auditor fails to spot a material misstatement, whether due to fraud or error then the consequences can be severe. Claims arising from such failures often have a high monetary value, to say nothing of the time cost and the reputational damage that can follow. In some cases there will also be FRC investigations which are also extremely time consuming and expensive to deal with. Auditors must therefore ensure that they have rigorous processes in place and adhere to audit regulations. Avoiding conflicts of interest and exercising a high degree of professional scepticism in the audit process are key.

2. Tax Advice

Unsurprisingly this is one of the most common sources of claims against accountants. Claims arising out of advice on CGT, Entrepreneurs Relief and EIS schemes are commonplace. We have also seen an increasing number of claims in relation to advice on the VAT status of a particular business. Accountants should take care to only advise on subjects they are familiar with and seek specialist input as and when required. They should also set out the scope of their engagement (including limitations of liability) clearly in order to minimise the risk of successful claims.

3. Cyber

We are seeing an increasing number of cases involving an element of cyber crime. The use of ransomware by cyber criminals is on an upward trend and we have seen a number of cases involving ransomware attacks on accountancy practices. If a firm is effectively locked out of its systems by a ransomware attack for any period of time this can have a dramatic effect on the business. It is therefore vital to have the correct insurances in place to assist. A good cyber policy will provide access to experts with the appropriate skills to address cyber attacks as quickly and effectively as possible

4. Business Purchase/Disposal

This is often a contentious area. Claims can arise from a variety of sources. There can be concerns raised around the accuracy of the accounts of the business in question. Advice on the tax implications on the sale or purchase of a business is another source of potential claims. If a client receives an unexpected tax bill they may well seek to blame their accountant. In addition, disputes also often arise between business owners (particularly family businesses) at the point of sale and accountants can easily be drawn in. It is therefore extremely important to manage any business sale or disposal carefully and address any potential conflicts of interest.

5. Missed Deadlines

This still tops the chart of the most common area of error for accountants. Failures to comply with filing deadlines can lead to fines and penalties being imposed by the HMRC. Accountants also regularly give other time critical advice to clients on business transactions. Having robust systems and processes in place to ensure that relevant deadlines are met will dramatically reduce the risk. It is also important that clients are advised in writing of their own responsibilities in relation to meeting deadlines and the consequences if they fail to do so .