Complaints against accountants that have not been resolved by conciliation pass to the Investigation Committee for a decision on whether there is a case to answer. If the complaint is serious, it may be referred to the Disciplinary Tribunal.
If the complaint is less serious, the Investigation Committee may offer a consent order to achieve an early conclusion without the need for a formal disciplinary hearing. The consent order will be published and will usually impose a reprimand and fine of up to £5000, plus costs up to £2,500. The average fines and costs in 1999 were £984 and £641 respectively.
Unfortunately, many accountants do not realise that accepting a consent order may jeopardise their professional indemnity insurance.
An accountant under investigation by the Professional Standards Office should take legal advice at the outset to establish the strength of the case and the defence available. If he doesn’t, he may face a consent order or a full disciplinary hearing.
On the face of it, a consent order seems an attractive option as the accountant is spared a disciplinary hearing, which can be expensive and intimidating. The tribunal can impose a reprimand or severe reprimand, unlimited fines and costs and may withdraw an accountant’s practising certificate or membership. Small wonder that many opt for a consent order rather than face the tribunal.
But there is a hitch. The accountant has in effect admitted guilt. If he has not notified his professional indemnity insurers of the complaint and sought their prior approval to the consent order, he may have adversely prejudiced the defence to any professional negligence claim made against him. Where the prejudice is severe, they may refuse to cover him.
Insurers rarely avoid an insurance policy, but they may refuse to cover the accountant for the claim in question – particularly if their solicitors advise that the accountant had a valid or at least an arguable defence.
The moral of the story is clear. When a complaint is made against an accountant for misconduct, particularly by a client alleging incompetence, inefficiency, neglect, poor service or advice, he should notify his insurers to give them an opportunity to assist him in the defence of the complaint.
Often, where the solicitors appointed by the indemnity insurers agree that it would be beneficial, the insurers may agree to pay for the cost of legal representation before the Disciplinary Tribunal or the costs of correspondence with the Investigation Committee.
Accountants should not accede to a consent order without considering the professional indemnity implications and obtaining prior approval of indemnity insurers. Failure to do so may mark the beginning, not end, their problems.
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