In this video, Mark Livingston discusses Duty of Care and its ramifications within professional services.

While most professionals have an understanding of duty of care, many are simply unaware of the potential costs that could arise through litigation.

Protection under a corporate entity

The protection afforded by the corporate veil is longer impenetrable as it was once thought of. Both individuals and companies can be simultaneously litigated for breaches in Duty of Care.

Both ASIC and a lesser part the ATO, uphold the standards of Duty of Care at a level much higher than many think. They focus on that the principals and directors uphold the ultimate responsibility, not necessarily the company entity.

Free services defence

Providing a service at no cost to the client has little relevance where there is a breach in duty of care. If the client has reasonably relied upon the advice whether free or paid, you are still liable.

Protecting your practice

It is important to understand that 1 major claim could put you completely out of business. Even if a claim has been dismissed in court, the legal fees accrued to defend that claim can be more than the entire revenue of the business.

How to protect your practice:

1. Having well-documented reports and dated file notes detailing events is a form of evidence that is usually accepted in court.

2. Have the clients sign off on anything appropriate.

Anything that you have recommended through advice such as corporate restructuring recommendations, tax schemes or plans should be signed off and understood by the client.

3 . Restrict advice to areas where you have experience and provable expertise. Having a license or a specialty certification in the specialized areas you advise in, can mitigate grey area recommendations.

4. Make sure you have appropriate professional indemnity insurance that covers your specialty areas. Having professional indemnity insurance in lines of business such as liquidation, business valuation and auditing for example ensures that you have the necessary coverage in claims within that line of business.

Many accounting professionals are unaware that professional indemnity insurance is only going to cover them for cases that are incidental to the main line of business. Therefore, if auditing or liquidation is not an incidental service, your professional indemnity coverage is unlikely to cover a claim.