2022 - 2026 Professional Standards Scheme
The IPA’s Professional Standards Scheme (Scheme) is a legal instrument that requires the IPA to monitor, enforce and improve the professional standards of IPA PPC holders. By doing this, IPA PPC holders are permitted to join the IPA Scheme as Scheme Participants who provide improved protection for consumers of professional accounting services.
As a result of the IPA undertaking this commitment, the Scheme caps the civil liability/damages that a Scheme Participant may be required to pay, if a court upholds a claim against them.
For information on the Professional Standards Councils (PSC) role in overseeing the IPA Scheme, the ongoing requirements for the IPA and IPA Scheme Participants and the Professional Standards Legislation and can be accessed on the PSC website here.
The new IPA Scheme commences on 1 January 2022 and will remain in place for five years until the 31 December 2026. A copy of the Scheme Instrument can be found here. There are significant changes from the 2019 – 2021 Scheme, which may affect you. These changes are summarised below.
(1) Two Scheme caps
The new Scheme has two Scheme caps, $2 million and $10 million. Your Scheme cap is determined by your fee income/turnover (excluding GST) for each previous financial year.
Members with fee income (excluding GST) of less than $10 million for the last financial year will retain their existing $2 million Scheme cap and will continue to be required to hold professional indemnity (PI) insurance of at least $2 million per reinstatement, have at least one reinstatement and meet all the PI insurance requirements in By-law 9.1.11.
Members with fee income (excluding GST) of $10 million or more for the last financial year will have a new Scheme cap of $10 million. The PI insurance requirements will rise to a minimum of $10 million per reinstatement, have at least one reinstatement and meet all the PI insurance requirements in By-law 9.1.11.
It is imperative PPC holders have the correct PI insurance amount in place as the Scheme cap protection relies on members holding the correct PI insurance amount. The IPA in house insurance broker IPA Insure offers cost effective insurance solutions and can be contacted on (03) 8665 3139 or email@example.com.
(2) Higher discretionary Scheme cap
The Scheme allows members to vary their Scheme cap amount up from the default $2 million or $10 million cap to a maximum of $75 million. Members who wish to vary their Scheme cap must apply to the IPA and hold PI insurance to the amount of the higher Scheme cap.
Applications to vary a Scheme cap are usually driven by a client request who is planning to enter into a high-value engagement with you. The higher Scheme cap enables a client to take legal action for a higher amount of damages than permitted under a lower Scheme cap, if the engagement ended in dispute.
(3) Scheme now applies to Entity members
The new Scheme will continue to provide protection for members as individuals, but it will also provide protection for a members practice entity. The entity must be an Australian company that is registered with the Australian Securities & Investments Commissions (ASIC) and holds an Australian Company Number (ACN).
All directors of the entity must be members of the IPA, CA ANZ and/or CPA Australia and must hold a PPC/Certificate of Public Practice (CPP) with the IPA or their respective professional accounting body and be a Scheme participant of their respective professional accounting body at all times during the period of Entity Membership. Note that at least one director of the entity must be an IPA member, hold an IPA PPC and be a Scheme Participant of the IPA Scheme at all times during the period of Entity Membership.
Entity membership is not automatic, PPC holders must apply to the IPA for inclusion.
(4) Scheme now applies for financial advisors
The new Scheme has expanded the scope of member protection and will now include all IPA PPC holders, including those that hold an AFS licence or a limited AFS licence with ASIC and the Authorised Representatives of both of these AFS licence holders. There is no special registration required, simply holding an IPA PPC will mean automatic inclusion in the Scheme.
(5) Member exemption from the IPA Scheme
Joint PPC holders that are covered under the CA ANZ and/or CPA Australia Scheme, can seek an exemption from the IPA Scheme. Members who wish to be exempt from the new Scheme must contact the IPA.
(6) Mandatory requirements for Scheme Participants
Scheme Participants must complete the annual Professional Standards Declaration in February each year. This Declaration is part of the IPA’s reporting requirements to the Professional Standards Council who administer the IPA Scheme.
Scheme Participants must also continue to use the disclosure statement on client correspondence, advertisements, websites, etc, which must state:
Liability limited by a scheme approved under Professional Standards Legislation.
Information about the disclosure statement requirements can be found here.
Scheme Participants must comply with the IPA Continuing Professional Development requirements mandated under Pronouncement 7, which is 120 hours of CPD over each three-year CPD period. Pronouncement 7 has changed as at 1 July 2021 and now requires 20 hours of CPD to be completed across each of the three new competency areas, being Technical and Product Knowledge, Management and Professional Skills and Professional and Ethical Standards. Pronouncement 7 can be found here.
If you require further information about the IPA Scheme, please contact:
Ph: (03) 8665 3148
Ph: (03) 8665 3122