The Application Of CPA Liability Insurance In Audit Risk Management Of Certified Public Accountants

Certified Public Accountant Professional Liability Insurance is a risk management mechanism, which gives protection against property losses of clients and other stakeholders caused by the negligence and mistakes of CPAs or accounting firms when they do the entrusted auditing work.Since the 1920s, developed countries like England and America were buying CAP professional liability insurance to transfer the auditing risks of economic responsibility. At present, the operation of this insurance mode is quite perfect. Due to the historical reasons, until early in this century, the necessity of CPA professional liability insurance in the risk management audit responsibility was gradually discovered and developed. The past fifteen years’ development has shown that CPA professional liability insurance plays a positive role in protecting the stakeholders’ benefit, transferring accounting firm’s risks and maintaining the stability of economic order. Nevertheless, such aspects as the mode of execution and insurance clauses still need to be improved.It is of great significance to transfer the auditing risks of economic responsibility through the CPA professional liability insurance since it not only has something to do with the improvement and standardization of China’s professional liability insurance market, but also promotes the integration of China’s CPA profession and insurance industry with the international practices, enabling them to address the challenges more easily in the new international situation, thus to fully achieve the function of CPAs as well as the insurance industry’s goals of safeguarding people’s livelihood.This paper starts with a literature review to present the definition and categories of auditing risks. It prominently analyzes the management of self-assumed risksand transferable risks and compared the common management approaches of the two risks through comparative analysis. Then, this paper focuses on the risk management of CPA professional liability insurance. By analyzing the status of China’s CPA professional liability insurance, it finds that shortcomings still exist in such aspects as the environment of development and insurance terms. Finally, it provides suggestions on the development of China’s CPA professional liability insurance by drawing lessons from the practices of British and American countries and considering China’s reality as well.