Accountancy software can protect against negligence claims

06 November 2006

Rising rates of negligence claims against practitioners based on taxation and accounting errors can be arrested if software incorporates risk management and review tools that minimise the possibility of human error.

A recent survey by Alexander Forbes International revealed that tax negligence claims against practitioners rose from 25.6% to 27.2% of the total during the 2005-6 financial year, much of which could have been avoided. This figure is of particular concern when audit negligence claims, an area where accountants would expect a significant degree of risk, are a comparatively low 3.8% of total claims.

David Johnson, the product manager for Digita’s personal tax software, said:

"Risk management begins at data entry level. The trick is to use software that will minimise the possibility of error by filtering out inappropriate controls and changing the questions asked of the user.

"Changing the question encourages correct data entry, the first and highest area of risk. Filtering out inappropriate controls reduces the opportunity for error and encourages rapid data entry. We have also developed software that actively interrogates the validity of information that has been entered and reports errors and conflicts to the user.

"Clearly, the most efficient way to manage and control the quality of the compliance process is to use a solution that completes the process in the most cost efficient way and with no opportunity for error."

David Johnson also emphasised the necessity of taxation software using an effective client review tool to provide an instant ‘full picture’ of a clients’ current and prior year tax returns in a structured way with the ability to flag up special issues that require attention. If this is combined with an initial review undertaken by the software itself then greater accuracy and a reduction in time spent on review can be achieved.

David Johnson concluded:

"Rising rates of negligence claims need to be addressed and the last thing practitioners need is to expend more time and money having returns checked and double checked.

"The opportunity to reduce both risk and cost is a rare combination. Digita’s personal tax software can do this and can also give active assistance in identifying tax efficiencies for each client based upon analysis of individual client data."

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