When preparing for and undertaking audits, it is mandatory that you have adequate professional indemnity insurance.
Professional indemnity insurance covers you against allegations of professional negligence.
It is up to you to determine whether your insurance is adequate to meet your obligations under the
National Greenhouse and Energy Reporting Regulations. Regulation 6.60 of the National Greenhouse and Energy Reporting Regulations 2008 requires an audit team leader who is a sole practitioner to maintain an insurance policy with an insured amount of at least $250 000 for each claim.
However, this is the minimum standard of cover required for audit team leaders when undertaking an audit. It is your responsibility to ensure that your indemnity insurance is adequate to cover you.
When determining whether your level of cover is adequate, we recommend looking at the method used by registered company auditors in the Australian Securities & Investments Commission
Regulatory Guide—180 Auditor Registration. This method uses the estimated audit engagement fee to determine how much cover is required. For example, if the fee is estimated to be $100 000 or less, auditors must be insured for a minimum of $2 million.
Your professional indemnity insurance should cover all aspects of your work. Not all policies offer the same cover, and generic policies may leave gaps in your insurance that could prove costly for you or your firm in the future.
The nature of your work is one factor taken into consideration by insurance firms when setting premiums, and auditors are often considered to carry more inherent risks than consultants. While this means that premiums may be higher for auditors than they are for consultants, it is vital that you accurately describe your work, as not doing so could mean you are not adequately covered.
Do not leave it until you have a claim to find out that some of your work is not covered. We recommend all auditors obtain written confirmation from their insurer that audit work is covered by the agreed policy. Even if you already have professional indemnity insurance, you and your firm should regularly review your cover to assess whether your insurance continues to be suitable.
If you are unsure about whether you are getting the best value out of your professional indemnity insurance, the
Certified Public Accountants Australia (CPA) provides a
professional indemnity insurance fact sheet to assist its members in getting the best value out of their insurance. In addition,
Chartered Accountants Australia provides
advice and information on how to ensure your professional indemnity insurance is accurate.
For more information, please email
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