Did you know, the Institute of Chartered Accountants of India (ICAI), which is the apex regulator of the chartered accountants in the country, took disciplinary action against more 120 members in the past five years?
The irony, the profession which takes care of the other financial matters, many times find itself in a legal suit. Yes, we are talking about the chartered accountants whose job involves crunching lots of numbers. Irrespective of how diligent and efficient you are as a chartered accountant, errors can arise and hamper the other person financially.
In the worse scenario, a case can be filed against chartered accountants. To prevent itself from legal suits, it is essential to purchase professional indemnity insurance for chartered accountants.
As a professional working in the accountancy world, the policy safeguards you against claims of incompetence or work quality.
Also, called the errors and omissions insurance policy, the insurance plan safeguards you if one of your clients claims that your action has caused them monetary losses. Professional indemnity insurance for chartered accountants typically covers court costs, attorney fees and settlement fees up to a certain point that has been pre-decided with the insurer.
Why Do Chartered Accountants Need Professional Indemnity Insurance?
As a chartered accountant, you need a professional indemnity insurance policy because, at some point in time, you are likely to face an issue that can result in the claim. Even the best financial advice that you give doesn’t give expected results. If a client works on the advice given by you, they may file a case against you if things don’t work in your favour.
Then there are accounting mistakes which can give rise to claims. Let’s discuss some of them:
- Errors of Omission: If the accountant forgets to pass the journal entry of the transaction or records only one part of the transaction, then this mistake can be termed as errors of omission.
- Errors of Commission: If an accountant passes only the wrong entry or writes the wrong amount or makes wrong calculations, these types of mistakes can result in errors of commission.
- Compensating Errors: Sometimes, while compensation the one mistake, we commit the other mistake. For instance, you wrote Rs 500 less on the credit side and also at the same time, write Rs 500 less on the debit side. Such error is hard to detect through trial balance as well.
Even if the mistake is unintentional, your client can sue you if they are upset with the consequences. Sadly, even if your work is error-free, your client may choose to file a legal suit against you so that they don’t need to pay your fees. Even if the court verdict goes in your favour, the legal costs could be upsetting. In this scenario, the best way to transfer the risk is by buying professional liability insurance.
What Does Professional Indemnity Insurance for Chartered Accountants Cover?
The professional indemnity insurance for chartered accountants protects your accounting firm if you are sued for an alleged or actual professional error. For instance, if you provide financial advice to your client who ends up losing money and decides to file a claim against you, your professional indemnity insurance covers the legal expenses. In case you lose the case in the court, the insurance policy will also compensate the other party on your behalf. Overall, in case of any lawsuit, professional indemnity insurance for chartered accountants will cover the following:
- Legal expenses
- Administrative expenses
- Settlement or court judgements
Even if you have performed your duties efficiently, a lawsuit could take havoc in your profession. Legal expenses could add up quickly and hamper your services financially. Not to mention, the ongoing court case can disrupt your work and also the revenue model. You can protect yourself by purchasing professional indemnity insurance for chartered accountants.
Also read: Is professional indemnity insurance worth
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