Professional indemnity insurance for Maltese practising auditors : an evaluation

Abstract

The purpose of this study is to evaluate the concept of indemnity insurance for Maltese practising auditors. It examines the importance of Professional Indemnity Insurance (PII) for the Maltese auditing profession, assesses the PII coverage taken out by Maltese auditors (including how Maltese auditors adhere to local legislation regarding PII) and their views regarding the recent changes in legislation and whether other changes, if any, are necessary, and finally, determines the liability risk exposure that may be faced by Maltese auditors and asks whether it is being managed. It also points out the views of Maltese insurance companies which underwrite PII for the auditing profession. This research was conducted through a questionnaire sent to sole practitioners, small and medium audit firms, and the 'Big 4'. From 143, 42 responses were received. The research was complemented by in-depth interviews with 9 questionnaire respondents and 3 insurers. This study established that Maltese auditors are in favour of the mandatory legal requirement for PII and consider such insurance important for their practice. Even though present legislation does not give any clear guidelines, sole practitioners and audit firms carry out some sort of assessment before acquiring PII cover, considering various factors. Furthermore, a slight majority of auditors and insurers agreed with the new amendments to the minimum PII cover, although two insurers expected further improvement. Generally, sole practitioners opt for the minimum PII cover while the majority of small and medium audit firms and all the 'Big 4' take out higher PII covers. This study found that the potential exposure to claims may be on the increase for Maltese auditors and that procedures are being carried out by Maltese auditors to manage such risks. As to whether changes are necessary to present legislation, several auditors put forward their recommendations, these being mainly more information and guidelines on how to assess the PII cover. It is hoped that this study will contribute to further improvements to present legislation and generate discussion among the profession and authorities so that auditors are adequately covered under PII and the public interest is safeguarded.