Liability Of Accountants When Their Client Commits Unlawful Acts

Posted by on May 8, 2018 in Business, Liability, Service, Tips | Comments Off on Liability Of Accountants When Their Client Commits Unlawful Acts

Liability Of Accountants When Their Client Commits Unlawful Acts

The accounting profession faces different types of risks; hence the need for accountant professional liability insurance as protection for the practice. There are accounting firms that are being penalized because they become accessories when a client breaks the law or exploits its workers. This is one of the cases where the professional indemnity insurance is seriously needed.

It is cold comfort for accountants that they are not only onesbeing penalized as accessories when the client breaks workplace laws. External advisers that include HR managers, payroll officers, line managers and directors including principals of suppliers are often on notice when the client is found guilty of exploiting workers or underpaying their services.

Recently, two accountants were found liable as accessories and fined due to workplace breaches that their client committed. Even if one of the cases is still being appealed, the cases have prompted some concerns whether professional indemnity insurance will cover the penalties.

According to principle, it is against public good if insurance is provided for someone who is breaking the law. On the other hand, Drew Fenton, principal at insurance firm Fenton Green said that if an individual or firm is innocently dragged into a situation, the policy can respond. This means the claim can be accepted under the policy and the insurer will instruct the solicitors on behalf of the accountant.

Most insurance providers will automatically consider that the accountant was only dragged in the Fair Work matter even if nothing wrong was done, so that the policy has to respond. However, there are different degrees of services that accountants provide from answering questions regarding pay rate to doing the actual payroll and distributing the employee’s pay. In case of breach, the liability will depend on what the accountant is doing for the client. If the accountant is found out to be directly involved in breaking the law, the policy will not provide any indemnity.

Because accountants can be held liable for breaches of laws and regulations and alleged unlawful acts of their clients, the need for accountant professional liability insurance has never been more important. The allegation may be completely baseless but expensive legal costs can still be incurred.

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