Insurance: Looking for directions

One of the fallouts of the legislation related to past accounting scandals is a renewed interest on the part of CPAs in courses on ethics and the management of accounting practices.

"We've always emphasized quality practice management," said Ken Mackunis, president of Aon Insurance Services, the national program administrator of the American Institute of CPAs' Professional Liability Insurance Program.

"The current legislation out there with emphasis on ethics training has heightened the awareness of CPAs," he said. "We've found that people who are actively involved in PCPS [the AICPA's small-firm committee] have a better claim experience than firms that aren't members. Underwriters are looking for that focus on quality of service. Underwriters are looking at these firms as better risks."

Joseph Wolfe, assistant vice president of risk control at CNA Global Specialty Lines, the underwriter for the AICPA professional liability program, agreed. "We've noticed that interest in the risk management tools that we provide is way up," he said. "There's much greater demand this past year than previously. Even the self-study CD-ROM calls to our hotline are up."

Wolfe said that there has been a shift of auditors in public companies to different CPA firms, and that many CPA firms are taking on non-audit work for public companies that they haven't done before. "Any time you take on new clients, you have to analyze that risk," he said. "Client selection is the backbone behind strong practice management."

Wolfe suggested that a firm check out prospective clients by looking at where they are in the industry in terms of management and culture, and also look at the financial status of the client.

"Do they have a history of financial planning errors or misstatements, or do they change auditors frequently? That can be a red flag," he noted. "Another thing we stress is for CPA firms to make sure they have relevant industry experience. Auditors can get into trouble if they get a client without knowing the industry."

Revisions to the AICPA rules that apply when non-attest services are provided to attest clients (Interpretation 101-3), which became effective Dec. 31, 2003, are significantly affecting CPAs now, according to Suzanne Holl, Redwood City, Calif.-based Camico's director of loss prevention services.

"CPAs are more impacted by Interpretation 101-3 than anything else," she said. "A lot of insureds don't do public company audits so we're not dealing a lot in that world. The bulk of audits are small, privately held companies, not large ones, so 101-3 has the greatest impact for us," she said.

Accountants still have a wide choice in professional liability insurance. In addition to the AICPA program administered by Aon and underwritten by CNA, other well-known carriers service the market, including Camico; CPA Mutual Insurance Co., of Alachua, Fla.; Philadelphia Indemnity Insurance; and the Chubb Group of Insurance Cos., in Simsbury, Conn.

Managing general agencies and brokerages with in-depth accounting profession knowledge that administer professional liability programs include Herbert H. Landy Insurance, which administers a program insured by the Genstar subsidiary of New York-based General Reinsurance Co., and Insight Insurance Services of Geneva, Ill., which administers a program that is insured by Everest National Insurance Co.

The chart above summarizes information for the various professional liability insurance programs available to CPAs. The companies that supplied the information emphasize that only a policy can provide the actual terms, coverages, amounts, conditions and exclusions. All coverage may not be available in all states.

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