Accountancy— a profession which corrects the financial errors of other parties, is often fraught with risks. If you are an accountant, it’s your responsibility to provide correct and precise accounting services to your clients. However, even the slightest mistake can disturb your client’s financial health and thus, make you liable for negligence.
It is a universal truth that people err and therefore, it is not always feasible to prevent mistakes. However, what you can do is minimise its consequences by purchasing accountants’ professional liability Insurance policy.
Why Do Accountants Need Accountants’ Professional Liability Insurance?
Accountants are constantly imparting advice to clients, which may include one or more the following activities:
- Accounts preparation and bookkeeping
- Business valuation
- Forensic accounting
If we talk about auditors, who come under the purview of the accounting world, would have to deal with fines and penalties in case of any negligence on their part.
Penalties, Prosecutions & Suits against Auditors under COMPANIES ACT 2013
|Section||Subject Matter||Not Less than||Maximum Penalty||Others|
|139||Rotation of Auditor (Unknowingly)||Rs. 25,000/-||Rs. 5,00,000/-|
|139 (Knowingly & wilfully)||Rotation of Auditor||Rs. 1,00,000/-||Rs. 25,00,000/-||If convicted, Refund of Remuneration & Liable for damages to the company, statutory bodies or authorities or to any other persons.|
|140(2)||Non-reporting by auditor for RESIGNATION||Rs. 50,000/-||Rs 5,00,000/-||Report to ROC within 30 days.|
|143||Reporting of Fraud (Unknowingly)||Rs. 25,000/-||Rs. 5,00,000/-||.|
|143 (Knowingly & willfully)||Reporting of Fraud||Rs. 1,00,000/-||Rs.25,00,000/-||If convicted, Refund of Remuneration & Liable for damages to the company, statutory bodies or authorities or to any other persons.|
|144||Performance of Other Functions(Unknowingly)||Rs. 25,000/-||Rs. 5,00,000/-|
|144 (Knowingly & wilfully)||Performance of Other Functions||Rs. 1,00,000/-||Rs.25,00,000/-||If convicted, Refund of Remuneration & Liable for damages to the company, statutory bodies or authorities or to any other persons.|
|145||Signing of Auditor Report (Unknowingly)||Rs. 25,000/-||Rs. 5,00,000/-|
|145 (knowingly or willfully with the intention to deceive the company or its shareholders or creditors or tax authorities)||Signing of Auditor Report||Rs. 1,00,000/-||Rs. 25,00,000/-||Imprisonment of 1 Year.If convicted, Refund of Remuneration & Liable for damages to the company, statutory bodies or authorities or to any other persons.|
|245||Class action suits against auditors and audit firm||Unlimited||Unlimited||damages, compensation or other action|
Source: Tax Guru
Know the Features of Accountants’ Professional Liability Insurance
Specifically designed for people working in the accounting sector, accountants’ professional liability Insurance offers financial coverage to accountants in case the claim arises against them. The policy is for those people whose duties include:
- Running the companies’ account books
- Preparing yearly reports
- Filing tax declarations
- Other operations which are essential to the client’s or company’s compliance with the laws
In accountants’ professional liability Insurance, the insurance company agrees to pay professional liability compensation on behalf of the policyholder to the aggrieved party as per the limit specified in the insurance policy document. Along with this, the accountants’ professional liability Insurance also covers the lawsuit costs incurred by the policyholder in defending itself in the court. To initiate the claim process, make sure to inform the accountants’ professional liability Insurance company as soon as the claim is filed against you. +
How to Choose The Correct Sum Insured Under Accountants’ Professional Liability Insurance?
In case of accountants’ professional liability Insurance policy, the sum insured is known as the limit of indemnity. It is the limit which is fixed as per the accident and the policy period, which is also called anyone accident (AOA) limit and any one-year (AOY) limit, respectively. The policyholder can choose the ratio of AOA limit to AOY as stated below:
Here, the AOA limit is the maximum amount which will be payable for each accident. The limit should be decided after considering the nature of the activity of the policyholder and the number of people who could be affected in the event of the accident.
Usually, it is only the professional who can by his judgement find out the right amount of cover as per its profession. In deciding the right coverage amount, it is essential to take the realistic view of the damages along with the legal costs for which the professional could become liable to pay. Being underinsurance is as dangerous as being without accountants’ professional liability Insurance.