A buyer should not treat a current professional indemnity insurance certificate as proof that an accounting practice’s historical work is protected. The investigation needs to connect the services performed, legal entities and people involved, known problems, claims and notifications to the policy that may be relevant—and then test what happens after completion.

This is a coordinated insurance, legal and transaction exercise. The buyer’s role is to establish a reliable evidence set and identify gaps. Only the insurer and appropriately qualified advisers should interpret policy response, decide whether a circumstance must be notified or determine how liability and transaction protections should be allocated.

Start with the work history, not the current certificate

Build a chronology covering at least the period advisers consider relevant. Map each trading entity, predecessor name, partnership, trust, principal and contractor to the services delivered in each year. Separate tax and BAS work, audit and assurance, financial advice, insolvency, valuation, consulting and any other specialist activity. A policy written for one entity or service mix may not answer questions about another.

For registered tax practitioners, maintaining professional indemnity insurance that meets the Tax Practitioners Board’s requirements is both an eligibility and ongoing Code matter. The TPB also says the policy held by a practitioner must cover entities providing tax agent services on that practitioner’s behalf (TPB). That regulatory requirement is important, but it is not a buyer-side conclusion that every historical matter is insured.

Request a policy schedule for every relevant year, complete policy wording, endorsements, renewal submissions, certificates, invoices and correspondence with the broker or insurer. Reconcile named insureds and business descriptions to ASIC extracts, organisation charts, employment records, contractor lists and fee reports. Record any change in entity, insurer, policy wording, limit, excess, retroactive date or service scope.

Build one claims and circumstances register

Ask for more than a list of paid claims. Create a single register of:

  • claims, demands, writs, complaints and compensation requests;
  • matters notified to any insurer, even if closed without payment;
  • facts or circumstances reported as potentially giving rise to a claim;
  • insurer reservations, declinatures, coverage disputes and requests for information;
  • excesses, uninsured defence costs, settlements and remediation payments;
  • professional-body, TPB, ASIC, ATO or other regulatory correspondence relevant to client work;
  • internal incident, error, quality-review and client-loss registers; and
  • threatened matters, fee disputes or recurring service failures not reported to an insurer.

Reconcile that register to broker loss runs, insurer correspondence, legal invoices, complaints records, general-ledger accounts, board or partner minutes and staff interviews. Missing notifications can matter as much as known payments. Do not ask staff to speculate about whether an incident is claimable; ask what happened, when it became known, who was told and what documents exist.

APES 325 requires applicable firms to establish, maintain, monitor and document a risk-management framework (APESB). Compare the seller’s framework with actual claims and incidents. Repeated errors without documented corrective action may indicate both operational exposure and a control weakness the buyer would inherit.

Read the policy chain as a connected system

Professional indemnity cover is commonly written on a claims-made or claims-made-and-notified basis. The TPB explains that a claim generally needs to be made against the insured and reported to the insurer during the policy period, while retroactive cover may reach back only to a specified date (TPB). Policy wording and facts control the actual outcome, so a buyer should have the whole sequence reviewed rather than infer cover from labels.

Ask the insurance broker and lawyer to examine:

  • the insured entities, former principals, employees, contractors and predecessor practices;
  • covered professional services, territorial and jurisdictional limits;
  • retroactive dates, continuity clauses and prior-known-circumstance language;
  • notification provisions and evidence that earlier notifications were accepted;
  • limits per claim and in aggregate, reinstatements and whether defence costs erode limits;
  • each excess, how related matters aggregate and who can fund the excess;
  • exclusions, sublimits and extensions relevant to tax, audit, advice, cyber events, dishonesty or outsourced work;
  • cancellation, non-renewal, merger, acquisition and change-in-control terms; and
  • access to files, cooperation duties and control of defence after completion.

CPA Australia’s current requirements illustrate why detail matters: its By-Law framework addresses named insureds, retroactive dates, excesses, defence costs, reinstatements and continuing cover, and it directs members to clarify coverage and indemnity-limit issues with their insurer or broker (CPA Australia). Those membership settings do not replace review of the actual seller and buyer policies.

Test run-off and continuity after completion

Historical work can produce later claims. The TPB recommends that practitioners ceasing services assess their continuing exposure and, where appropriate, consider run-off cover; it also notes that availability can affect what is obtainable. CA ANZ tells members leaving public practice that run-off cover is needed for at least seven years and that former partners should check whether a continuing firm policy covers them (TPB; CA ANZ). Applicable obligations vary with membership, registration, structure and facts.

Do not assume the answer is simply “the seller buys run-off”. In an asset purchase, a seller entity may retain historical exposure while the buyer performs future work. In a share purchase, the acquired entity and its history may remain together. A merger, seller retirement, continuing principal or replacement policy can alter the analysis. Ask advisers to map each service period to the potentially responsible entity and intended insurance arrangement.

Before signing, seek documentary answers to who will arrange and pay for run-off, required limits and duration, evidence of annual renewal, notice of cancellation or material change, access to policy and claims records, cooperation on later claims, control of defence, excess and uninsured-cost allocation, and remedies if agreed cover is not maintained. Transaction drafting cannot itself guarantee insurance response.

Use decision gates, not a single risk label

Question Stronger evidence Warning sign
Is the history complete? Entity and service chronology reconciled to every policy year Missing predecessor entities, policies or broker files
Are problems visible? Claims, notifications and incidents reconcile across independent records “No claims” statement unsupported by loss runs or complaints data
Is continuity understood? Broker and lawyer map retroactive dates, notifications and future arrangements Assumption that the buyer’s new policy automatically covers old work
Can later matters be managed? Run-off evidence, record access and cooperation duties are documented Seller entity may close, retain no records or stop renewing cover
Is downside funded? Limits, excesses, defence costs and uninsured exposures are modelled Purchase case ignores excesses or aggregate erosion

An unresolved item does not prove that a claim exists or that cover will fail. It does identify work for advisers and may support further diligence, pre-completion notification, remediation, a condition precedent, retention, indemnity, price adjustment or a decision to pause. The appropriate response depends on the evidence and negotiated structure.

Questions for the buyer’s advisers

Ask the broker whether the risk presentation is complete, which entities and services the proposed arrangements are intended to cover, and what evidence is needed to preserve continuity. Ask the insurance lawyer to review policy wording, notification history, run-off and any dispute—not to provide a verbal assurance based only on a certificate. Ask the transaction lawyer to align disclosure, warranties, indemnities, access and cooperation with that insurance analysis. Ask the accountant or valuation adviser to model excesses, premium changes, remediation and uninsured costs separately from normalised earnings.

Keep insurance advice in writing and tied to the final transaction structure. A late change from an asset purchase to a share purchase, a different acquiring entity or an altered seller role can make an earlier analysis incomplete.

Sources

Disclaimer

This article provides general information only. It does not constitute legal, tax, accounting, financial, credit, valuation or other professional advice. Circumstances differ. Obtain advice from appropriately qualified advisers before acting or entering a transaction.