Professional Clearance – Courtesy or Essential Requirement

Professional Clearance – Courtesy or Essential...

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I have been refused professional clearance by a new client’s previous accountant because they have a dispute over non-payment of fees.

I am reasonably satisfied with the client’s explanation and in fact (at our request) he has paid part of our fees in advance.

I think I have enough information from the previous accounts and a copy of the last tax return to proceed. My question is simply is there anything to prevent me from doing so?

Am I correct that asking for professional clearance is simply a matter of courtesy and a means of obtaining information on past accounts and tax affairs (and alerting one to any possible issues such as the client’s poor payment history) or would I be at risk of some form of legal proceedings if I acted when clearance has actually been refused?

I’m sure I’m just fretting unnecessarily but perhaps someone can advise me?

Thanks

Lorraine

Replies (11)

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Euan's picture
By Euan MacLennan
21st Mar 2007 17:45

"Clearance"
I agree that you are not asking for clearance in the sense of permission to act, but for any circumstances of which you should be made aware before deciding to accept the appointment. The previous accountant has made you aware of just such a circumstance, so he has fulfilled his obligations. It is up to you to decide whether to act or not.

At the same time, but quite separately, it is usual to ask the previous accountant for information which the client has not given to you but which you need, such as the trial balance. If the previous accountant has not been paid for his work, it remains his property and he is both entitled and very likely to refuse to let you have it.

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By AnonymousUser
23rd Mar 2007 06:43

A suggestion
Unpaid accountancy or audit fees shall cause the business licence to cease one month after credit period expired.


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By User deleted
21st Mar 2007 18:18

Not exactly just a courtesy
It's not so much clearance as establishing if there's any reason that you shouldn't act. Many people ask "do you have any objection" but the better form of request is "are you aware of any professional reason why we shouldn't accept this appointment"

If the former accountants have found some problem with the client, perhaps that returns or accounts are incorrect and the client won't alter them, they should communicate this to you, having obtained the client's clearance to release information. This predates money laundering regs by decades.

The outgoing accountants may refuse to release information pending settlement of fees, but they shouldn't refuse to answer the letter.

None of this is enshrined in law - it is all a requirement of professional ethics laid down by the institutes. If you are not a member of one, you don't have to have the "clearance" and if the outgoing accountants aren't, they don't have to give one. (And please don't take this as re-opening the perpetual qualified v non qualified slanging match)

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By yorsolution
21st Mar 2007 19:48

That's what I thought
Most people seem to have confirmed what I thought about this situation.

I take RR's point about there being 2 sides to the story, but am prepared to give the client the benefit of the doubt.

I agree with Euan that the previous accountant has fulfilled his obligation by making me aware of a reason why I may decide not to take the job on. I do ask if they "know of any reason why I should not .." rather than asking if they have any objections as this seems more appropriate to me.

I used the phrase refused professional clearance because the accountant's letter actually stated that they were "not prepared to provide professional clearance or any information requested until the situation (regarding their fees) had been resolved"

Thank you evryone for your comments, I now feel reassured that it's just up to me whether I want to take on this client - and as I said he has actually made a payment already so I would either have to return that or I can risk not getting the balance.

Thanks again

Lorraine

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By AnonymousUser
21st Mar 2007 21:17

Acca rules, by way of example, state
Re Clearance: "The main purpose of communication [with the existing accountant] is to enable members to ensure that there has been no action by the client which would on ethical grounds preclude members from accepting the appointment and that, after considering all the facts, the client is someone for whom members would wish to act." (3.12.17)
Re Handover: "All reasonable transfer information must be provided even when there are unpaid fees", this being defined as a copy of the last set of accounts formally approved by the client and a detailed TB in agreement with those accounts. (3.12.46-7) This is not overridden by any right to exercise a lien (3.13.13)

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By yorsolution
24th Mar 2007 12:37

Please elaborate
Professor TOTs

Sorry but I don't understand your suggestion. Could you expand on it please?

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By AnonymousUser
21st Mar 2007 15:43

Formality

There is actually no such thing as professional clearancce if you read the rules carefully enough. You have done all that can be expected of you. You do not need "permission" to act.

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By User deleted
21st Mar 2007 16:28

What you said
about client's explanation - just be aware that there are always 2 sides to a story, and very rarely does the outgoing accountant get a good account from clients. I've also heard stories from the new client about the old accountant that weren't true, or that the client simply misunderstood.


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By adam.arca
22nd Mar 2007 13:39

Yes, but...
The ICAEW rules make no such stipulation (rightly, in my opinion). I've always been amazed at how ACCA are prepared to shaft their own members and stand apart from the accounting "consensus" on handover info. And for the avoidance of doubt, when I use the term "consensus," I'm not arguing for a closed shop acting against the public interest, simply a recognition that unpaid accountants should have rights also.

I'm also a bit surprised that no one has mentioned the need for detailed breakdown of balances (which a TB doesn't necessarily provide if taken too literally).

To take an example, I once lost a client to an unqualified (no prizes for guessing why) and refused detailed handover info as my account hadn't been paid. Included within "Other creditors" was a very significant amount of deferred income, but that wouldn't be known without a detailed breakdown.

The new accountant rang and asked me to confirm that the client was two years behind with his books, which he was. After that, I haven't heard from either of them since and can only assume that accounts were prepared without any knowledge of what made up the opening balances. I think it's probably more likely than not that all that deferred income is still sitting in other creditors now, several years later.

Lorraine, I'm not saying you shouldn't go ahead, but you do need to be careful you understand everything in the opening accounts or consider unknowns to be too insignificant to worry about.

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By yorsolution
24th Mar 2007 12:35

A valid point but doesn't really apply
Thanks Adam.

However in this case the accounts appear very straightforward, there is no balance sheet and there are no debtors or creditors listed. This is a sole trader with a very simple business with a fairly small turnover.

I am aware of the problems when no or inadequate breakdown of balances is provided (as has sometimes been the case when I have asked a previous accountant for info).

I appreciate your comments and advice though.

Lorraine

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By adam.arca
26th Mar 2007 13:29

Not meaning to throw a spanner...
..in the works, Lorraine, but isn't it the case that if you have no balance sheet then you need to be extra careful (simple case or not).

Without handover info or a balance sheet, how can you be sure the previous accountant hasn't incorporated balance sheet type adjustments such as debtors and accruals into the last statement of earnings?

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