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The CA ANZ Professional Standards Scheme (“Liability Capping”) Explained
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Professional Indemnity Insurance for Accountants
Working as a professional in Australia and New Zealand can be incredibly rewarding, but also comes with its fair share of risks. For Chartered Accountants, the cost of damages arising from claims of occupational liability can be absolutely crippling. Thankfully, Chartered Accountants Australia and New Zealand (CA ANZ), which is a professional body within both NZ and Australia, has registered a new scheme for its Australian members that limits their liability as a practising professional, where they hold a Certificate of Public Practice or Affiliate membership, or in the case of an incorporated practice, where that company holds Practice Entity Membership.
As Commercial Insurance Brokers in Brisbane, we want to help explain what the CA ANZ Scheme means for your firm and how we can work with you to build a robust Professional Indemnity Insurance framework to keep you practising with peace of mind.
What is the CA ANZ Professional Standards Scheme?
In October 2019, a new Professional Standards Scheme for Chartered Accountants in Australia commenced, with a set purpose to limit the extent to which a claim can be made against members and so protect its professional members. Having been approved by the Professional Standards Council, the CA ANZ Professional Standards Scheme now continues to proudly operate as a Scheme approved under the Professional Standards legislation, and will continue to do so until 2024.
You might consider this scheme as a second layer of security when it comes to Professional Indemnity Insurance for your accounting practice. The scheme recognises its participating members as responsible professionals who are subject to supervision and control by their relevant professional body. So, in turn, the scheme provides those members with adequate resources to meet a claim made against them by imposing a cap on the amount that can be awarded.
How does the CA ANZ Professional Standards Scheme work?
As a member of the Chartered Accountants of Australia and New Zealand, you’re obligated to follow certain rules and provisions, and of course, uphold the professional standards of your profession. Likewise, there are also some conditions to be met in order to remain eligible for additional protection under this scheme.
It might surprise you to learn that if you are eligible for the scheme, then your participation is mandatory in the scheme, which makes it all the more important to ensure that you’re aware of the conditions and requirements imposed on you.
Eligibility Conditions
Management Liability insurance is designed to provide protection to both the business and its directors or officers for claims of wrongful acts in the management of the business.
A business insurance pack can provide cover for your business premises and contents, against loss, damage, theft or financial loss from an insured interruption to the business.
Eligibility Conditions
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- In Australia, the scheme applies to members who hold a Certificate of Public Practice (CPP), Practice Entity Members and Affiliate members. Also covered under the scheme are Employees and partners of CPP holders, on the condition that they aren’t eligible for membership.
- For all scheme participants, there are annual mandatory reporting obligations.
- You must have a disclosure statement on all business stationery and professional communication to clients, which states “Liability limited by a scheme approved under Professional Standards Legislation”. This includes any websites, invoices, letters, emails, reports, advice etc.
If you fail to display the disclaimer on all documents you give to prospective and actual clients, it can leave you liable for the amount of any claim that your insurance won’t cover. Additionally, you’d also be committing an offence under the Professional Standards legislation, which could result in a fine. - Your Professional Indemnity Insurance (PII) must be sufficient to meet the value of the cap limit[KL1].
The minimum compulsory insurance is inadequate for a surprising amount of applicants. CA ANZ recommends engaging the professional services of an insurance broker, such as Hunter Broking Group, to ensure that both the member and the firm have adequate cover.
The minimum Professional Indemnity Insurance required under CA ANZ Professional Standards scheme
The minimum level of Professional Indemnity Insurance that’s required under the scheme is impacted by the size of your largest fee and by the type of work you and your firm perform.
The following table sets out the minimum level of PII required, depending on whether you conduct audit services, insolvency services or other services.
The table is based on cost-in-addition cover per individual claim.
Audit Insolvency Other
Where highest fee* is <$100k $2 million $2 million $2 million
Where highest fee* is ≥$100k but < $300k $5 million $5 million $5 million
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Where highest fee* is ≥$500k but <$1million $20 million $20 million $20 million
Where highest fee* is ≥$1million but <$2.5million $50 million $50 million $50 million
Where highest fee* is ≥$2.5million $75 million $75 million $75 million
Where cost inclusive cover is taken up, the amount of cover required increases by 25% of the above amounts.
If you need to revise your cover levels, let us crunch the numbers for once, by requesting a quote.
The insurance requirements you need to adhere to
Making sure that you have sufficient professional indemnity insurance in force to meet the cap limit is just the start of the insurance requirements you need to adhere to in order to satisfy the conditions of the scheme. As a well respected Queensland Insurance Broker, we’re happy to assist when it comes to understanding your requirements and review your cover to make sure you get the tick of approval.
The Insured Parties
You must make sure that the insured parties include:
- Each Principal of your firm
- Each Related Party
- Any person who either is currently, will become, or ceases to be (during the period of insurance) an employee of the practice or Related Entity, including a principal of the practice or related entity
- Anyone who has ever been a principal or employee (this is required for run-off cover).
Should any of the people listed above become incapacitated or pass away, your insurance policy must cover their legal personal representative as an insured person, also.
The Insurer
The insurer must be authorized to carry on their insurance business under the Insurance Act 1973. If they are an unauthorized foreign insurer (UFI), this will only be acceptable on a range of different conditions, including where the policy is arranged through an agent or insurance broker licensed in Australia, such as Hunter Broking Group.
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Your Profession and Business
An easy trap to fall into when it comes to covering your accountancy business, is that some professional indemnity policies don’t automatically cover all services that are required to be covered under the scheme. Financial Services, for example (as defined in the Corporations Act 2001) isn’t an accountancy service that’s automatically covered by policies, but financial advice is considered to be a public accountancy service by CA ANZ and so needs to be covered as above. Again, the CA ANZ recommends engaging professional insurance brokers to ensure that all your professional services are covered by the insurance policy.
The period of insurance
It’s a requirement for your insurance to be for a period of not less than one year. If the scheme imposes a common expiry date, then your policy’s expiry date must align with that expiry date.
Excess
The scheme also imposes a maximum excess. This will be at least $10,000, but may be more depending on the size of your practice.
Your cover inclusions
The scheme requirements for included cover is quite extensive. Some of the cover conditions include:
- The policy musn’t be able to be cancelled by the insurer in the event that you innocently non-disclose or misrepresent your answers in the insurance application.
- Understandably, it has to cover any civil legal liability including any act, omission or error or any of the people insured.
- Importantly, you might be requested to obtain a written statement from an insurance broker who’s registered under the Financial Services Reform Act 2001, (like us at Hunter Broking Group) to confirm that your policy complies with the scheme and the requirements of the regulation.
What do I do if a client makes a claim against me?
If you are in the unfortunate position of a client having made a claim against you, the first step is to let your insurer know. The service provided through Hunter Broking Group includes being able to assist you throughout the entire claims process. We understand that the administration and time spent dealing with a Professional Indemnity Insurance claim can be significant; we work for you, not the insurer.
You will also need to let the CA ANZ know, because professional standards schemes such as this one have reporting obligations to the professional standards council. The responsibility for including the liability cap as part of your defence claim will sit with your lawyer.
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FAQs about professional standards schemes
There is no denying the complexity of working as a professional. Below, we answer some of the frequently asked questions about professional standards schemes in Australia.
Do professional standards schemes exist in every occupation?
Professional standards schemes typically only apply to occupations that are classified as professional occupations. These include accountants, financial planners, legal, educational and medical practitioners. Most professionals have a relevant scheme approved under their relevant professional standards legislation.
What if a claim is made against someone who has now left our practice?
Thankfully, run-off cover clauses are included in the insurance requirements for this scheme. Run off cover will help protect your practice against liability for services previously provided up to 7 years.
How do I get more information on the current professional standards scheme?
You can obtain further information on the current scheme by referring to the Professional Standards Council website, the Chartered Accountants in Australia and New Zealand website, or by calling CA ANZ on 1300 137 322.
Where can I access civil liability cover as an accountant?
As a Chartered Accountant, you’ve worked too hard to keep yourself open to liability. If you want your liability limited, then it’s important to continually ensure your professional indemnity cover remains adequate.
We are one of Brisbane’s experienced insurance brokers who have a keen interest in supporting accountants throughout Queensland. To find out more about how we can get you covered, contact us today.
General Advice Warning: This advice is general and does not take into account your objectives, financial situation or needs. You should consider whether the advice is appropriate for you and your personal circumstances. Before you make any decision about whether to acquire a certain product, you should obtain and read the relevant product disclosure statement.
All information above has been provided by the author.
All information above has been provided by the author.
Hunter Broking Group, ABN 97 622 090 715, AFSL 460382
This article originally appeared on Hunter Broking Group Media and has been published here with permission.
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