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Cessation of Engagement letter to client going to a new accountant - are these common?

A new client (non audit, personal and trust tax client) has received a Cessation of Terms of Engagement letter from their previous accountants, with the request that they sign the three page document indicating their agreement.

One of the paragraphs states ' you agree to hold harmless and indemnify us against and representation, whether intentional or unintentional, supplied by us orally or in writing in connection with this agreement. You have agreed that you will not bring any claim in connection with services provided to you by the firm against any of our employees on a personal basis.'

There are three other paragraphs in this general vein under the heading of Limitation of Liability.

My questions:

Are these letters becoming common, or even recommended best practice by the professional bodies?

Presumably the advice to the new client should be to ignore it and don't send it back?! I've read it a few times and am still not very clear about what it's trying to say, but the overriding impression is that signing it can only reduce the new client's rights.

Thanks

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22nd May 2012 16:21

No need to sign

Unless it was part of the prior t&cs or engagement letter that the client was required to sign such a letter on termination, there's no need to sign and they can't be forced to sign.

If they are threatening to hold back information, then all the client needs to do is write a letter authorising them to disclose their personal/business information to the new accountant, so that the old accountant can't hide behind client confidentiality as a reason for not providing changeover info.

If they remain a pain, then a complaint to their professional body will do the trick.

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By Flash Gordon
22nd May 2012 17:16

Use of disengagement letters

I use them to set out what I'm still doing before ceasing or the last thing that I've done so that both sides know who's responsible for what. But I don't expect them to sign anything & I wouldn't waste time trying to put that sort of stuff in - I doubt most people would agree to it and it probably wouldn't hold up in court. I think the prof bodies do recommend the use of a letter but not like that.....

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By Locutus
22nd May 2012 17:31

Disengagement letters

I use the standard ACCA disengagement letters (ACCA do recommend their use) ... although they don't include anything like the sort of paragraphs you refer to!  Like others I'm not sure that sort of stuff is even enforceable.  If an accountant is seeking to put limitations on their liability then I would think they need to do so before the commencement of the engagement, not after it has finished.

My disengagement letters have a place for the client to sign, but in truth they rarely bother and it is rather difficult to get them to sign when I have told them I no longer wish to act!  But I think sending the letter out very clearly demonstrates to the ex-client that I take no further responsibility for their affairs.  If they sign the thing then I consider it a bonus.

I would suggest your client just bins the "cessation of engagement" letter they have received, as there is no legal or moral obligation to sign it.

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By Jimess
25th May 2012 23:40

Disengagement letters

I issue a letter setting out the boundaries of our responsilibilites and to advise the client of what work has been completed by us as at the date of termination. It just gives a clear cut off point.  Like an earlier post I don't ask for it to be signed and returned and don't make a big issue of it, but it does provide a written record of who is responsible for what and provides clarity. I have seen some sample disengagement letters that go to the far end of trying to limit liability, but I would not think they would stand up in court so I don't see any point in using such clauses.

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By nkwayne
29th May 2012 12:08

go further

I have a personal dislike of things which should not be done but are not challenged.  Thats why people / firms / governments continue to do it. 

 

Your client should join in the fun and write back and say that far from accepting this letter, he would like to know the specific acts or omissions that the firm is trying to avoid liability for, and if they were liable otherwise before the cessation to act, why would cessation now negate that liability.  Ask also for details of their professional indemnity insurance policy, details of their complaints policy and contact points, and confirmation that they recognise that they remain liable for failures of professional standards for damages incurred whether the act or omission occurred at any time in the past or in the future irrespective of cessation to act.

 

I would imagine that they are as likely to answer that as they are to get clients to sign their disengagement letter...

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By nkwayne
29th May 2012 13:49

proper use

And yes as other posters have said, disengagement letters should be used, and they should clarify not only the date of ceasing to act but also the cut-off of any work carried out. 

I have a client who had a payroll done by the previous accountant but one.  The last employee left on week one of the new tax year before ceasing to act.  13 months on, the P35 did not get filed.  Client thought old accountant should/had done it, old accountant thought he had ceased to act and was therefore not responsible, yet his last bill had referred to '...completing & finalising the payroll to cessation of employees...'.  Next accountant was bloody rude about the whole thing, hence my client now :-)

 

No disengagement letter, so no clarity who had done what.

 

I think all the accountancy bodies recommend them, certainly ICAEW does. And as a way to ensure that the liability cut-off point is correctly identified I use them on the obviously very rare occasion when a client leaves me (ahem ahem).

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