SMSF auditors should check their professional indemnity (PI) insurance will cover them for legal action undertaken by clients, but also by government regulators, and allow them to choose their own legal defence, a sector specialist lawyer has pointed out.
DBA Lawyers special counsel Bryce Figot said one of the key questions that arises in his work advising auditors undergoing a review or audit from the ATO or the Australian Securities and Investments Commission (ASIC) is the level of cover offered by PI insurance.
“The most important question is: does your insurance cover you? Every auditor has insurance, but does it cover you if you get sued by a client, but also for the legal fees to defend you if you get audited by the ATO and/or ASIC because you want to have a fulsome defence?” Figot said during a presentation at the recent Auditors Institute Auditors Day 2025 in Melbourne.
“I once had a client who was doing single-digit audits and the ATO went through and said we want to refer you and he engaged me saying ‘I want justice’.
“We went through the case and it was a tremendous victory, but it took a lot of time to do it because there were a lot of errors on the ATO’s behalf.
“In a case like that, who’s going to pay for the legal fees? Not all audit insurance covers you for this type of event so check your PI policy to see if it does.”
He noted that being able to choose your own lawyer may also be dictated by the terms of the PI insurance policy.
“Do you get to pick your own lawyer? It depends. Often insurers will say ‘we have a panel solicitor or you can engage whoever you want’,” he said.
“Invariably, they then write a whole bunch of questions and ask that lawyer lots of questions about invoices, and sometimes grumble about them, but then they reimburse.
“It does depend on the policy you hold, but they usually reserve the right to appoint a panel lawyer and that could be a question you direct to the insurer as to how they will approach it.”
