Every four years, the Practice Revi...

Every four years, the Practice Review and Licensing Committee evaluates the institute's practice review and licensing program and currents a report to Council setting without recommendations for changes and improvements. The Committee currented its most recent report, the Refort in succession Planning Cycle 7, in May 2004

All of the recommendations outlined in this report were subsequently approved. chiefly significant among them was the recommendation in heed of professional liability insurance, which is detailed in this article. (The other recommendations outlined in the Report upon Planning Cycle 7 will be discussed in this same round pillar next month.)

Current requirements

As part of its evaluation proces the Committee reviews the professional liability requirements mandated for authorised practising offices according to Bylaw 250 and the related regulations. The now passing minimum coverage amounts required on Bylaw Regulation 250/1 have remained unchanged since their introduction in 1986 and are as follows:

Review process

In assessing the adequacy of these minimum coverage amounts, the Committee undertook a number of processs including the following:

1. The now passing minimum coverage amounts were compared to those of other provinces. The Committee set up that these amounts paralleled the requirements of other provinces with three major exceptions:

* In Nova Scotia, the provincial command requires all professional accountants with assurance engagements to carry minimum professional liability insurance of $1000000 by occurrence;

* In Alberta, [he provincial command requires that "a public accounting firm that acts, or in the prior five years has acted, as auditor for an entity that is required to file with a securities regulatory authority... shall carry professional liability insurance in the amount not les than $1000000 by incident"; and

* Most other provinces do not have a "2 or 3 members" category. The horizontal of insurance required is the less of $250,000 per member or $1000000

During its review, the Committee also noted that near of the other provinces have fix limits on the amount of deductible an authorised practising office may have, as well as requiring that members justify they are capable of funding this deductible if necessary.

Because the Committee is unaware of any instance in which a BC member has not met the deductible onward a professional liability insurance policy when called on the subject of to do so, it does not believe it necessary to establish deductible limits at this time.

2 The Committee considered what the practice review officers have been encountering during their visits to authorised practising offices: specifically, that it is becoming more used by all to find authorised practising offices, particularly single practitioners in smaller communities, completing audit and assurance engagements in high-risk situations with barely the minimum professional liability insurance coverage. A high-risk example: organizations like credit unions, health authorities, seminary boards, and regional districts that proffer having local professionals service their requirements.

3 The Committee reviewed statistics and other information provided by dint of the Association of Insured Chartered Accountants Inc. (AlCA), the insurer for in the greatest degree of the authorised practising offices in BC In reviewing this material, the Committee noted the following trends:

* The frequent occurrence of claims has been increasing.

* Litigation of claims has increased from 22% of all claims in 1992 to 33% of all claims in 2002

* principally claims relate to income tax issues, sales tax issues, and purchase/sale agreements.

* A significant number of claims made against members have been settl for policy limits.

4 Hinally, the (Committee discussed the object of professional liability insurance, concluding that because the insurance requirements are in place to defend the public, it is not acceptable to have members or firms providing services to clients without on a levels of insurance that would allow the clients to screen any potential losses they may incur owed to negligence on the part of the member or firm.

New requirements

As a consequence of its evaluation, the Committee approveed to Council that the minimum flushs of professional liability insurance, as required according to Bylaw Regulation 250/1, be increased to the following levels:

Council approved this recommendation at its May 2004 meeting and subsequently changed Bylaw Regulation 250/1 in October 2004 making the increases effective for all professional liability policies issued or renewed after March 31 2005

Impact forward practitioners

As can be seen from the following chart, the increased requirements will affect the 31% of authorised practising offices in BC that popularly carry the minimum required professional liability insurance coverage.

Of the approximately 295 offices that will be affected on this change, 255 are only practitioners. Communication with the AICA provided the Committee with the following information in revere of the added cost a one practitioner will incur in order to raise their minimum professional liability insurance requirement to the fresh levels: