A RECENT survey by CPA Australia has highlighted the potential fall-out from the rising cost of professional indemnity (PI) insurance cover for accountants.
The survey found that 26 per cent of respondents had withdrawn or were intending to withdraw certain high-risk services, such as audit or financial planning, in the next 12 months.
This was in response to higher PI premiums and the growing use of policy exclusions.
The exclusions mean that cover can be obtained only if the accountant ceases defined activities, such as advising on managed investment schemes.
In the survey, 12 per cent of respondents specifically identified the withdrawal or winding down of audit services.
Particular emphasis was placed on withdrawing audit services to small businesses and community organisations.
The survey also indicated that many members would be forced to withdraw pro-bono audit services to non-profit or community organisations.
CPA Australia undertook the survey in mid February and received responses from 1,200 members in public practice.
Greg Larsen, the chief executive of CPA Australia, said: “The danger signals are plain to see”.
“What we are trying to avoid is a May Day situation where small businesses, rural firms and the community are hampered in their operations because they cannot get business advice from their accountants.
“The other danger to consumers arising from the insurance market failure is that they will be increasingly dealing with uninsured ‘men of straw’ who deliver a lower quality service and are not subjected to a professional self regulatory regime.”
The rising cost of PI insurance recently prompted the Institute of Chartered Accountants in Australia (ICAA) to reduce the mandatory PI cover required of its members.
It said premiums for accountants had risen by 117 per cent and 45 per cent in the past two years.
CPA Australia and ICAA are pushing for several key reforms to address the crisis in PI insurance.
These include a shift from ‘joint and several’ to proportionate liability, caps on liability, and national adoption of professional standards legislation.
