Case Study Accountants

Professional Indemnity insurance is an important part of many professionals' business risk management.
We asked successful professionals in key sectors about their business, and where PI fits into the work they do.

Tim Smith, Chartered Accountant and owner, Nevill Hovey Chartered Accountants

What does your business do?

We look after private individuals, the self-employed, business partners, limited companies, charities and clubs. We do their VAT returns, their accounts, their audit, their payroll, their tax returns, and their Companies House reports. We also advise on business development and corporate governance. We save people tax: we do tax planning for Capital Gains Tax and for Inheritance Tax.

What kind of risks do you have to think about in the day-to-day running of your business?

The quality of technical advice we offer is very important and the risks involved depend on what we're working on. With auditing, the risks could be issues concerning the solvency of the client or with their systems of internal control. Like all businesses, we need to keep an eye on our credit control to make sure that we get paid. There are risks associated with employing people, and when dealing with client accounts there is the risk of making a mistake. We have systems in place designed to minimise that risk but as we are all human mistakes can happen – that's precisely why we have PI cover in place.

When did you first buy Professional Indemnity insurance for your business?

I set up the practice seven years ago with a partner who has since retired, and I am now sole proprietor of the business. PI cover is mandatory for Chartered Accountants and it's the first thing that our regulatory body, the Quality Assurance Directorate, looks at when they come to do their inspections. The QAD is part of the Institute of Chartered Accountants in England & Wales and they do a whole firm review to check we comply with money laundering and other regulations and assess the quality of our auditing.

What are the key benefits of PI cover for chartered accountants?

Quite simply, we know that if we are ever unfortunate enough to have made a mistake that we can make a claim on the policy. It provides you with reassurance that, in the event a client makes a claim against you, both damages and legal fees are covered and you won't be bankrupted.

What aspects of your business or services that you provide are most open to risk?

The audits are most open to risk. Audit reports state that the accounts give a true and fair view and we have to be able to justify this by showing that we have conducted our audit in accordance with the regulations. Audits are the most tightly regulated as shareholders rely on them and take business decisions accordingly.

What are your customers' greatest concerns, and how does PI help protect your reputation?

The big concerns revolve around getting the work done on time and issues of compliance – we have to be aware of the timetable for whatever needs to be delivered such as tax returns. Clients also need a degree of certainty about the fees we will charge. We try to give fixed quotes or at the very least a good indication as to the costs involved.

What's the most interesting case of a negligence claim or horror story you've heard of in your industry?

Even though the audit report is addressed to the shareholders and designed for their benefit, there was a case where the company's bank got hold of the accounts. When the company defaulted on its bank loan, the bank claimed that they had relied on the audit report when deciding to lend the company money. And they successfully sued the auditors. Now we put a paragraph in the audit report making it clear that it is not for the benefit of the banks.