Stay in your lane to protect your clients (and your practice)

A growing number of practitioners are dabbling in unfamiliar territory, leaving themselves vulnerable to professional indemnity claims. Here’s why it pays to stick to what you know.

In recent years, multiple professional indemnity (PI) insurance claims have arisen from accountants giving advice in areas of practice beyond their expertise.

According to Drew Fenton CPA at Fenton Green, practitioners might overstep their boundaries for a number of reasons, such as when offering informal advice to a client-turned-friend, or when struggling to navigate new legislation. 

In most cases, however, Fenton believes accountants “step outside their lane” when trying to retain clients who are expanding the scope of their business and who may have “outgrown” them. 

“Invariably, clients match up with accountants in their infancy, but things change over time, whether it be the size of the company, the territories in which they operate, or the tech they use to run their business,” Fenton says. 

“At this point, it’s up to the accountant to say: Am I the right person for the job?”

Understand your limitations

While it’s important to tread carefully when providing any service that falls outside “business-as-usual” activities, there are certain common landmines that tend to crop up in PI claims, which accountants should be particularly wary of. 

These include business valuations, research and development taxation, work performed for publicly listed entities, as well as specialist tax matters, such as capital gains or overseas tax. 

Interpreting legislation in these and other high-risk areas without seeking specific advice can have significant repercussions.

Fenton points to a number of recent PI claims in which businesses have incurred financial loss – or even been forced to close – after receiving incorrect advice from their accountant. “We’re seeing some nasty cases where liquidators have ended up suing practices, trying to recover costs,” he says, adding that such experiences can be highly stressful, compelling practitioners to spend time away from their regular work to defend their position, as well as their reputation. 

Know when to step aside 

Before accepting any unfamiliar engagement, Fenton urges practitioners to weigh up the risks, factoring in the complexity of the issue, their professional limitations and whether the activity is covered by their PI policy. 

If there’s any uncertainty, he recommends referring clients to a practice that has the appropriate expertise to service their request. 

“You've got to resist the FOMO: the fear of missing out and losing the client,” he says. “If a doctor isn’t sure about a client’s prognosis, they're not going to guess; they're going to send them off to a specialist. The accounting profession should be the same.”

Given that practitioners have a duty of care to ensure that anyone they send clients to is well-equipped to perform the task at hand, Fenton suggests seeking advice from CPA Australia about other firms that can assist with higher-risk activities. 

Although practices might be reluctant to disappoint – or risk losing – clients by sending them elsewhere, he believes this is a much safer option than worrying about whether or not they’re giving incorrect advice and heightening their exposure to PI claims. 

Fenton adds: “It’s critical to understand your skill set and make sure you’re comfortable when you give advice that your knowledge is correct.”

Find out more about professional indemnity insurance from QBE Fenton Green.