Professional clearance is only a professional courtesy
AccountingWEB’s Any Answers section regularly contains questions and answers on the topic of ‘professional clearance’, explains consultant practice editor, Mark Lee.
This has prompted me to review the related guidance and rules – at least in so far as is relevant to members of ICAEW. I would expect guidance from the other professional bodies to be largely comparable.
I wonder what accountants do if they are not members of a professional body and have no obligation to comply with the related ‘rules’?
If it were me I would want to find out who my predecessor was and what they did for the client. I would also want to let them know that I have been appointed. And I would ask if they could let me have anything I might need. The idea being that this way I can avoid bothering them in the future.
This seems like common sense to me. Do you agree?
ICAEW Code of Ethics
The Code, which is available online on the ICAEW website is effective from 1 January 2011. I believe it replaces parts of the old members handbook which was issued in hard copy for the last time in 2009.
Paragraph 210.9 addresses: ‘Changes in a professional appointment’.
The key message seems to be:
An accountant who is asked to take on a client who has previously been serviced by another accountant, shall determine whether there are any reasons, professional or otherwise, for not accepting the engagement.
Such reasons would include circumstances that create threats to compliance with the fundamental principles that cannot be eliminated or reduced to an acceptable level by the application of safeguards.
And this says something subtly different from what some who comment in Any Answers seem to think is the position. Take the case of sparkey999 who posted his dilemma in July 2010. He had recently started in practice and had agreed with his previous employer that he would inform her if he was approached by clients of her firm. Sparkey999 would only issue professional clearance letters once notified by the clients or by his old firm that this was appropriate.
It seems to me that there may have been no need to issue professional clearance letters as such in this situation. If sparkey999 worked on the clients previously he only needed to consider if there was any possibility that his employer knew more about the clients than he did. How else could there be ‘any reasons, professional or otherwise, for not accepting the engagement’?
My point is that a professional clearance letter is a misnomer. It is not asking for permission to take over the predecessor’s client. Its purpose is to find out if there is any reason why you should not take on the client. And it makes sense to also ask in such letters for any information and paperwork that the old accountant is able and willing to pass over.
The advisory services team at ICAEW publishes a series of helpsheets for members in practice.
‘Changes in Professional Appointment’ (Standard 2: Helpsheet 5) expands on the guidance at para 210.9
This helpsheet outlines the steps members should take both when they are taking over a client and when approached by an accountant taking over one of their clients. It is this helpsheet that states that members ‘should… WRITE a professional enquiry letter to the predecessor’. It also contains a number of examples and notes that: ‘It is common practice to combine an initial professional enquiry with a request for information and documents’.
The helpsheet suggests that:
"If the predecessor fails to respond to your professional enquiry letter, you should attempt to make contact by other means, for example, by telephone.
"Before acting, your final step should be to send a recorded-delivery letter stating that in the absence of a response within a specified time you will assume there is no information which might affect your decision to act. In these circumstances you are entitled to conclude that silence means the predecessor has no adverse comments to make.
"This does not, however, relieve you of your obligation to consider whether acceptance of the appointment would create any threat to compliance with the Fundamental Principles."
Back in 2009 Any Answers included a question titled: ‘Resignation and Professional Clearance’. It seems new accountants had not sought professional clearance before starting to act. Maybe they weren’t members of a professional body.
Another common question on this topic was raised quite recently under the title: ‘Professional Clearance when fees outstanding’. Euan MacLennan advises correctly, in my view, that a reply to the letter should indicate something like "We are not aware of any professional reasons why you should not accept appointment". (Although it’s a shame we have to use a double negative to do this).
The issue of which papers have to be passed over in such cases is a separate, and often complex, question. Another response on the same post, from the Welsh Dragon, contains some constructive, if a little controversial, advice in this regard.
In June 2011 a question appeared under the heading: ‘Charging for professional clearance’. Is it normal? In fact the charge in question was probably not for replying to the letter per se, but for collating and supplying the information being requested by the new accountants.
I shared my views that this isn’t commonplace but also that it may not be unreasonable. There are a number of other useful comments on that thread along similar lines. Cbp99 quotes from the ACCA rulebook (210.34-210.36) which seems to be explicit that: “the former accountant shall promptly provide the new accountant with all reasonable transfer information that the new accountant requests, free of charge.” Again though we have to be clear as to what is ‘reasonable’ in this context.
On this thread: ‘New accountant carries out work without professional clearance…’ a number of contributors rightly make the point that seeking ‘professional clearance’ is not a question of gaining permission from the previous accountant.
And to conclude I return to a quote from Phil Rees on another 2010 thread about professional clearance. It inspired the title of this article as Phil suggests that it’s all about ‘professional courtesy’.
This phrase is also used by fellowcraft in a more recent thread on the subject of ‘Previous Advisors’ and professional clearance refusal.
These letters are more than a professional courtesy but they are not about asking for permission either. What do you think?
Members of the ICAEW who have queries related to letters of professional clearance can use the helpline provided by the Ethics Advisory Service. Email [email protected] or call 01908 248025.
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