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CA Firms / CATOs
Liability Insurance
Frequently Asked Questions - Professional Liability Insurance Requirements
- Why have the professional liability insurance (PLI) limits changed?
Most professional and personal liability insurance coverage already exceeds the current minimums, and other accounting bodies have introduced higher limits, so it is appropriate and necessary that the CA profession increase PLI limits. As well, the number and dollar value of claims are increasing.
It is also important that PLI requirements be harmonized across the country as much as possible, so that all CAs are meeting – and are seen to be meeting – the same high standard. In today’s global environment, marked by increased scrutiny, rapid change, intense competition and enhanced oversight, raising the bar for PLI will confirm the quality and consistency of the CA designation and will signal the profession’s ongoing commitment to protect the public interest. - Why do standards need to be the same across the country?
It is important that the minimum mandatory PLI limits be uniform in their application and harmonized as much as possible across the country, in order to demonstrate the quality and consistency of the CA designation and to protect the public interest. - What are the services for which the minimum PLI coverage must be maintained?
All members and practices that provide any of the following services must maintain the applicable minimum PLI coverage:
- Assurance engagements (including audit and review engagements);
- Compilation engagements;
- Accounting insofar as it involves analysis, advice and interpretation in an expert capacity, but excluding record keeping;
- Taxation insofar as it involves advice and counselling in an expert capacity, but excluding mechanical processing of returns.
- Why are these changes being brought forward now?
The current minimum PLI requirements have not changed since they were first introduced in 1996. In the meantime, the cost of doing business and the level of claims sought and settled has increased significantly. - Isn’t this just an over-reaction to the problems in the U.S. and with the big auditing firms?
While it is true that the accounting profession has been under unprecedented scrutiny over the past number of years due to Enron and other corporate failures, the need to increase minimum PLI requirements is driven by a number of factors, including globalization, rapid change, competition and enhanced oversight. But, first and foremost, the CA profession must meet – and be seen to meet – the highest standards in order to protect the public interest. National harmonized PLI standards are an important part of the profession’s ongoing commitment in this regard.
It should also be pointed out that claims over $250,000 have doubled since 1999-2000, with more than half of the number and dollar value of claims relating to tax issues. - What are the new minimum PLI limits?
All provincial CA institutes/Ordre are being asked to increase the required minimum PLI limits as follows:- $1 million where one member practises public accounting; or
- $1.5 million where two or three members practise public accounting in a partnership or through a professional corporation;
- $2 million where four or more members practise public accounting in a partnership or through a professional corporation.
The minimum coverage amount of $1 million (or $1.5 million or $2 million, as applicable), is per claim.
The Institute's Council has approved the increase in limits and has amended the Mandatory Professional Liability Insurance Regulation The new minimum PLI amounts are effective as of January 1, 2008. Please note that policies currently in place should incorporate these new minimum PLI limits upon the policy renewal date in 2008. - How much will my premium go up?
Many members in small, medium and large firms, who already carry coverage at or above the new levels, will be unaffected by the changes. It is anticipated, based on current data available from the Association of Insured Chartered Accountants (AICA, which provides insurance coverage for about 85 per cent of small- and medium-sized firms), that base premium costs for minimum coverage would increase by no more than $36 per month. It should be noted that for a relatively small increase in premiums, the new minimum limit quadruples existing coverage. - I’m a part-time practitioner – why do I have to meet these new requirements?
It is important that all CAs in public practice carry the required minimum coverage, in order to protect the public interest. At present, based on data available from the Association of Insured Chartered Accountants (AICA), which provides insurance coverage for about 85 per cent of small- and medium-sized firms, more than half the number and dollar value of claims relate to tax issues and close to 10 per cent of claims relate to non-review engagements, the main areas of practice for part-time practitioners. - How do the new minimum PLI limits compare with the requirements established for CGAs and CMAs?
The new minimum PLI per-claim limits proposed for Canadian CAs are in fact the same or higher than those of CGAs and CMAs. The maximum per-claim limit for CGAs and CMAs is $1 million or less, regardless of the number of practitioners. The CA per-claim limit begins at $1 million for one practitioner, rises to $1.5 million for two or three practitioners and increases to $2 million for four or more practitioners. - When do the new limits take effect?
The new limits take effect as of January 1, 2008. Please note that policies currently in place should incorporate these new minimum PLI limits upon the policy renewal date in 2008. - I can’t get discovery insurance from the AICA – will the proposed changes help me obtain it?
The changes do not affect the availability of discovery insurance from the Association of Insured Chartered Accountants (AICA) for those who currently do not qualify for it. - Will I have to buy my insurance from a specific carrier?
No, the proposed changes do not require members to buy their coverage from a specific carrier. A listing of insurance carriers is found at: Professional Liability Insurance - Aren’t we just being penalized for the transgressions of the large auditing firms?
The minimum PLI limits are being increased to protect the public interest, to reflect the current coverage levels already carried by many members and because other accounting bodies have increased their minimum limits.
Based on current AICA data, claims over $250,000 have doubled since 1999-2000 and more than half the number and value of claims relate to tax issues. Close to 10 per cent of claims relate to non-review engagements, one-and-a-half times as many claims as review engagements. - Will requirements be set for a maximum allowable deductible amount and a minimum aggregate claims amount per policy period?
In accordance with the Standards adopted by the Public Accountants Council for the Province of Ontario, the Institute’s Council has also adopted, effective immediately, a maximum deductible requirement for professional liability insurance policies maintained by members, firms and professional corporations who practise public accounting. The professional liability insurance policy must prescribe a maximum allowable deductible that must not exceed 50 per cent of the minimum coverage amount. The amount of the deductible also must be reasonable in relation to the total revenues of the member’s, firm’s or professional corporation’s practice of public accounting. In addition, the member, firm or professional corporation must set aside assets at least equal in value to the amount of the deductible. - I no longer practise and currently have discovery insurance coverage for $250,000. Will I be required to increase that coverage to $1,000,000?
No. The Council has established transitional provisions under which members who have ceased practising and have obtained a minimum of $250,000 coverage under a discovery policy are permitted to maintain their discovery coverage at the $250,000 level for the duration of the six-year discovery period. - I expect to stop practising public accounting in the near future. What is the amount of discovery insurance coverage I will be required to maintain?
The amount of discovery insurance that will be required to be maintained upon cessation of practice will have to be at least equal to the amount of coverage that was maintained while practising. If the minimum amount of coverage maintained while practising was $250,000 on the date of ceasing practise, and the date of cessation is prior to January 1, 2008, it will be necessary to maintain discovery insurance coverage at $250,000 for the duration of the six-year discovery period. It will not be necessary to have discovery insurance coverage at the new level of $1,000,000.
Similarly, if the amount of coverage maintained at the date of ceasing practice is $500,000 or $750,000, and the date of cessation is prior to January 1, 2008, it will be necessary to maintain the discovery policy for the duration of the six-year coverage period at $500,000 or $750,000, as applicable. It will not be necessary to have discovery insurance coverage at the new level of $1,000,000.
If the practice of public accounting will be continued beyond, December 31, 2007, it will be necessary to obtain coverage at the applicable new minimum amount and to obtain discovery policy coverage at the new minimum amount for the required six-year period following cessation of practice. - I am retired or will shortly be retiring from the practice of public accounting. What will it cost me to maintain discovery insurance coverage?
Underwriters for the Association of Insured Chartered Accountants (AICA) currently provide free, annually renewable discovery insurance for retired sole practitioners that meet the minimum mandatory insurance limits provided they have been insured continuously, claims-free, for at least three years. Please contact the AICA for complete details. - I don’t currently provide any services to the public, but I may wish to do so in future. What are the services for which I must ensure that I have professional liability insurance coverage that meets the Institute’s requirements?
All members, sole proprietorships, partnerships or professional corporations that provide any of the following services must maintain the applicable minimum professional liability insurance coverage, as prescribed in the Mandatory Professional Liability Insurance Regulation:- Assurance engagements (including audit and review engagements);
- Compilation engagements;
- Accounting insofar as it involves analysis, advice and interpretation in an expert capacity, but excluding record keeping;
- Taxation insofar as it involves advice and counselling in an expert capacity, but excluding mechanical processing of returns.
Members who provide public accounting services without reward, under certain conditions, are exempted by Ontario Regulation 238/05 from the requirement to be licensed. Members who provide these services, however, are required, effective January 1, 2009, to have professional liability insurance coverage.