Accountants - limited liability question

[deniser]

Is it usual when taking on a new client for an accountant to place a limit on their liability?

I'm reading a document which limits their liability to a multiplier of their fees. The indemnity insurance level is far in excess of this.

Is this standard practice?

 

[Alan R Price]

Is it usual when taking on a new client for an accountant to place a limit on their liability?

I'm reading a document which limits their liability to a multiplier of their fees. The indemnity insurance level is far in excess of this.

Is this standard practice?

I wouldn't say it's standard practice but it is fairly common nowadays. You can of course insist on a higher level, perhaps more commensurate with your perception of any risk you associate with an accountant's negligence, however they could of course refuse. . .

 

[elaine@cheapaccounting]

Agreed - common practice these days.

 

[London Bookkeepers]

Yes. Not all accountants have this clause but some do. I don't think it's that much of an issue.

 

[deniser]

Thanks for clarifying. What would be a reasonable cap for a set of company accounts and a set of service charge statements for a large development?

 

[elaine@cheapaccounting]

What would be reasonable compensation if something went wrong with the tasks that you are asking the firm to undertake? E.g. late filing fines etc - probably not a 'massive' amount really.


Also bear in mind that they may refuse to change it.



Would that be a show stopper to you using them?

 

[deniser]

What would be reasonable compensation if something went wrong with the tasks that you are asking the firm to undertake? E.g. late filing fines etc – probably not a ‘massive’ amount really.


Also bear in mind that they may refuse to change it.



Would that be a show stopper to you using them?

I did once come across a case where an accountant had not submitted estate accounts for several years - it's a long story - and the fines and penalties amounted to several hundred thousand pounds.

I'm thinking that it might be appropriate to add a proviso to the cap that cases of negligence are excluded...

Would that be reasonable?

Yes it could be a show stopper which is why I am thinking it through.

How often do accountants actually have to claim on their indemnity policy?

 

[Jaydee]

Thanks for clarifying. What would be a reasonable cap for a set of company accounts and a set of service charge statements for a large development?

Our standard, for non-audit work, is a tenfold multiple of annual fees.

With regards to other firms, we rarely get to know but of ones I have seen, I have never seen higher than ten, and have seen as low as threefold - would be interested to know what others do.

 

[Jaydee]

the fines and penalties amounted to several hundred thousand pounds.

You're kidding?

 

[deniser]

Our standard, for non-audit work, is a tenfold multiple of annual fees.

With regards to other firms, we rarely get to know but of ones I have seen, I have never seen higher than ten, and have seen as low as threefold - would be interested to know what others do.

That seems very low.

So when did accountants start doing this as I don't remember it in the "old days"?

 

[deniser]

You're kidding?

Sadly, no. It was one of those cases where it was late and because the staff member didn't want to confess to their error, they tried to bury it, which of course made everything very much worse.

That's why I'm thinking, as a client, that there should be some protection from gross negligence such as this. After all, that's what the insurance policy is there for.

 

[elaine@cheapaccounting]

How often do accountants actually have to claim on their indemnity policy?

Almost never if they are good

My advice - discuss with the firm as I expect your needs could be outside of what they will agree to. Discussion will save you wasting more time if the firm will not proceed and it is a show stopper for you.

Then I would suggest that you approach firms with your needs in this area as part of your specific requirements. It helps the firm to understand your needs better IMO.


Good luck

 

[deniser]

Thanks Elaine.