Professional Liability Insurance
- For newly registered Firms and professional corporations, professional liability insurance must be obtained prior to the commencement of the practice of public accounting and proof of coverage must be provided within 2 months of the commencement date and annually thereafter.
- A notice to update current insurance information with CPA Ontario will be sent annually and will contain a declaration of compliance with the mandatory insurance requirement. Members who are practising public accounting and do not have insurance will be subject to suspension and ultimately revocation of membership if they continue to practice without the prescribed insurance coverage.
- Once you cease practising public accounting you are required to maintain discovery insurance for 6 years from the date of cessation. Notification of practice closure is required in writing. If the practice is a professional corporation there are additional requirements.
Requirement to maintain professional liability insurance coverage
CPA Ontario Bylaw 4.13 requires that every Member or Firm, including a professional corporation, engaged in the practice of public accounting or providing accounting services to the public to maintain professional liability insurance and provide CPA Ontario with satisfactory proof of such insurance, in accordance with the requirements established by the Council in the regulations. Regulation 4-4, Professional Liability Insurance prescribes the minimum amount of professional liability insurance that must be maintained and who is required to maintain such coverage.
See below for definitions of “practice of public accounting” and “providing accounting services to the public.”
Regulation 4-4 requires that professional liability insurance coverage be maintained by:
- every sole proprietor or Firm engaged in the practice of public accounting or providing accounting services to the public in Ontario; and
- every Member engaged in the practice of public accounting or providing services to the public in Ontario who is a partner in any organization other than a sole proprietorship or Firm.
Prescribed Levels of Insurance
Minimum Professional Liability Insurance Requirements
The minimum amount of professional liability insurance required to be maintained is:
- for a sole proprietor or Member engaged in the practice of public accounting or providing accounting services to the public in Ontario who is a partner in any organization other than a sole proprietorship or Firm: $1 million per claim;
- for a Firm or sole proprietorship of two or three Members: $1.5 million per claim; or
- for a Firm or sole proprietorship of four or more Members: $2 million per claim.
The minimum limits apply to all sole proprietors, Firms and Members engaged in the practice of public accounting or providing accounting services to the public in Ontario who are partners in any organizations other than sole proprietorships or Firms, including those who practice on a part-time or contractual basis and those with small limited practices.
Maximum allowable deductible
Regulation 4-4 requires that any deductible amount must be reasonable in relation to the total revenues of the sole proprietor or Firm and shall not exceed fifty per cent of the required minimum amount of insurance to be maintained. Each sole proprietor or firm must ensure that assets are set aside at least equal in value to the amount of the deductible that is specified in the professional liability insurance policy. The assets set aside for this purpose must be in:
- cash (or demand deposits); or
- cash equivalents such as a letter of credit or short-term, highly liquid investments that are readily convertible to known amounts of cash and which are subject to insignificant risk of changes in value.
Members who do not currently have coverage are urged either to contact their own insurance brokers, or one of the following:
Legacy CGAs who are seeking coverage may contact AON Reed Stenhouse Inc., 416-868-5500
Members are reminded to read the fine print in the insurance contract to ensure that the policy provides the coverage needed to meet the mandatory professional liability insurance requirements of Regulation 4-4.
The minimum annual premium for the prescribed coverage through AICA for a part-time practitioner as of January 2011, is approximately $1050. This is a base rate, dependent upon the following conditions:
- annual gross billings must not exceed $30,000;
- there must be no more than one CPA and one part-time staff;
- the part-time practice is in addition to full-time employment, or the CPA is retired and provides services from his/her home.
The maximum limit of liability under this policy for a part-time practitioner is $1,000,000 per claim, with a $1,000,000 aggregate limit. No deductible credits are offered.
The minimum premium for the prescribed coverage through AICA for a full-time sole practitioner as of January 2011, is approximately $1,450. This base rate may be increased if any of the following conditions exist:
- previous claims;
- gross billings over $425,000;
- over 60% of the services performed relate to management consulting;
- the sole practitioner employs more than one staff person;
- civil penalty coverage is added.
Additional features offered through AICA's program are:
- Directors & Officers coverage of $1,000,000, at no additional cost for qualifying boards;
- A deductible reduction if an engagement letter or a claim is successfully settled using an alternative method to going to court;
- Coverage for traditional and non-traditional CPA services including coverage for public company related services;
- Defence costs in addition to the policy limit;
- Innocent partner coverage;
- True worldwide coverage can be added to your policy to respond to a lawsuit presented in a country outside North America where the services are rendered;
The maximum limit of liability where only the prescribed coverage is obtained through AICA is $1,000,000 per claim, with a $1,000,000 aggregate limit. There may be a deductible.
These are approximate premiums only. Please contact your carrier for more detailed premium and coverage information.
Duration of Coverage
Regulation 4-4 requires that professional liability insurance in an unreduced amount must continue to be maintained for a period of at least six years following:
- the withdrawal of a partner or Member employee of a Firm from engaging in the practice of public accounting or providing accounting services to the public, whether or not that partner or employee continues to carry on providing accounting services to the public elsewhere;
- the merger, dissolution or cessation of practice of a Firm or sole proprietorship;
- the suspension, revocation or non-renewal of a Firm or sole proprietorship's registration, or the dissolution or discontinuance of a Firm or sole proprietorship;
- the suspension, revocation or non-renewal of a professional corporation's certificate of authorization, or the dissolution or discontinuance of a professional corporation; or
- the withdrawal of a shareholder, officer, director or Member employee of a professional corporation, whether or not that shareholder, officer, director or Member employee continues to carry on the practice of public accounting or providing accounting services to the public elsewhere, to cover acts or omissions occurring prior to the changes listed above.
Given that grounds for a claim may be discovered after a Member ceases public practice, a six-year discovery period has been mandated, to ensure that both the public and the Member are adequately protected. In general, the premium for a discovery policy declines over the six years to 30% of the premium paid, or a minimum of $150, during the Member's last year in practice. Should a member pass away, the estate should maintain the coverage for the six-year discovery period, in the event that a claim should arise, for which the estate would be liable. Members should ensure that their current policy provides coverage for the entire six-year period. Some insurance companies do not provide coverage for this period in all circumstances.
The AICA Services Inc. has a special discovery policy for sole practitioners at no cost, granted the practitioner meets the AICA's requirements of eligibility. Please contact the AICA for further information.
Bylaw 1.1.26 defines “practice of public accounting” as meaning the provision of the services described in s. 2 of the Public Accounting Act, 2004, excluding any exceptions to services listed in s. 3 of that Act.
Section 2 of the Act defines “practice of public accounting” as providing, on a basis that is independent of the person for whom the services are being provided, either of the following services:
- assurance engagements, including an audit or a review engagement, conducted with respect to the correctness, fairness, completeness or reasonableness of a financial statement or any part of a financial statement or any statement attached to a financial statement, if it can reasonably be expected that the services will be relied upon or used by a third party. Assurance engagements may or may not include the rendering of an opinion or other statement by the person who is providing the services.
- compilation services, if it can reasonably be expected that all or any portion of the compilations or associated materials prepared by the person providing the services will be relied upon or used by a third party and the compilations or associated materials do not contain a notice in the prescribed form that provides that any assurance given by the person is limited to the accuracy of the computations required in order to complete the compilation.
Under Section 3 of the Act, a person is not required to be licensed as public accountant if the person provides:
- public accounting services exclusively in respect of,
- any public authority or any commission, committee or emanation of a public authority, including a Crown corporation;
- any bank, loan or trust company;
- any transportation company incorporated by an Act of the Parliament of Canada; or
- any other publicly-owned or publicly-controlled public utility organization; or
- services as,
- a bookkeeper or for engaging in bookkeeping, in cost accounting or in the installation of bookkeeping or business systems, solely by virtue of engaging in those activities; or
- a person preparing or offering to prepare financial statements solely as part of tax returns, if the person offers,
- no opinion independent of the taxpayer in respect of the financial statements or in respect of the returns, or
- no other service requiring a licence under this Act.
Bylaw 1.1.31 defines “providing accounting services to the public” as including:
- the performance of any engagement addressed by standards in the CPA Canada Handbook- Assurance for which a licence is not required under the Public Accounting Act, 2004 to perform the engagement;
- 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;
- compilation services, if it can reasonably be expected that all or any portion of the compilation or associated materials prepared by the Member providing the service will be relied upon or used by a third party, whether or not a licence is required under the Public Accounting Act, 2004; and
- such other services and activities as may be included by the Council by resolution from time to time.