Mentor and Speaker for accountants BookMarkLee
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Professional clearance is only a professional courtesy

27th Jun 2011
Mentor and Speaker for accountants BookMarkLee
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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.

Starting point

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. 

ICAEW Helpsheets

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."

Real-life

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?

Mark Lee is consultant practice editor of AccountingWEB and chairman of the Tax Advice Network.  Visit his personal website and blog.

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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Replies (27)

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By DBlood
28th Jun 2011 19:21

Lets be clear ............

........... about the REAL reason most accountants ask for professional clearance. What they are really saying is, does this client pay on time, or is he a royal pain in the rear.

MLR considerations, copy balance sheets, etc are secondary to that fundemental question which cant be asked, but, is certanly implied.

 

Or am I just cynical?

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By BKD
28th Jun 2011 21:20

In my opinion

You are just cynical (you did ask, so please don't complain about the response). When I, as a CIOT member, speak to the previous adviser, it is to find out whether there are any issues that I need to think about before accepting appointment. If it comes to light that there are problems re payment of fees I will certainly take that into account before deciding, but it is by no means the only factor. But I agree with the opening comment - I too wish people would stop referring to them as 'clearance' letters - they are nothing of the sort. The only 'clearance' comes from the client, who gives (or does not, as the case may be) permission to speak to the previous adviser.

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By DBlood
28th Jun 2011 22:58

.

CIOT members are not bound by the same rules as we ACA's and, as far as I am aware CIOT only "recommemd" seeking clearance from the previous agent, whereas we are "required" to do so.

 

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By BKD
28th Jun 2011 23:18

Required or recommended

Either way, I don't see what that has to do with the point about the 'real' motive behind the letter.

For information, the rule that a CIOT member should contact the previous agent is in the Institute's Rules - not the Practice Guidelines. Breaches of the Rules may subject the member to disciplinary action. Whilst the wording does not go so far as to say that the member 'must' contact the previous adviser, the words 'should contact' are pretty persuasive, and one would need to have good reason for not contacting the previous adviser. I note in the opening comment that ICAEW's helpsheet also only says that the member 'should' write to the previous agent.

And for what it's worth, I also adhere to the Rules and Ethics of ICAS.

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By jon_griffey
01st Jul 2011 10:55

Clearance letters
We recently had a QC/monitoring visit from ACCA and got a regulatory finger gently wagged at us for acting for a client before having received a response from the previous firm.

Whilst it is desirable to receive a reply from the client’s previous advisers before accepting the appointment, this is not the real world. The reality is that they have invariably lost the client due to dissatisfaction, often because they fail to deal with the client in an efficient and timely manner. It follows that they are going to be even less efficient in dealing with outgoing clients. As a result it is the norm to get no reply at all from professional clearance letters, or very inadequate, tardy replies.

In the meantime clients require professional services, often urgently and if we simply refuse to act for months on end whilst we await a letter that will never arrive then they will just find another accountant who will.

The process of obtaining professional clearance is only one part of our due diligence procedures when taking on new clients. The main reason to send a professional clearance letter is as a courtesy to inform them of the change in professional appointment and to request information from their files. Although we enquire if there are any reasons why we should not act I have never been given any such reasons in the whole of my professional career so I do not consider a small theoretical risk justification for a prolonged delay in acting for the client. The clients we deal with are generally small with straightforward affairs and we quickly establish whether we want to act for them.

I personally think that this is one area of the rules that could do with a fresh look.

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By The Minion
01st Jul 2011 10:57

Not just a courtesy issue

Whilst we always request clearance - sometimes given easily and sometimes reluctantly because fees are outstanding (warning bells sound).

There is a more fundamental purpose behind the letter and that is avoiding PI issues in the future!

We have relatively standard clearance letter with requests for the usual stuff, plus claims/elections needed and historical costs. We have received some over zealous ones that run to several pages! That is where we then ask for payment for the substantial amount of additional information required (and it is substantial sometimes!).

We have in the last couple of years lost clients and NEVER heard form client or new adviser, so how can they safely say they have done the accounts correctly let alone dealt with the tax adequately - in once case they cant have because of the things that had happened with the client whilst we dealt with them.

 

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By batterie
01st Jul 2011 11:00

Grow Up!

Now, now come along children................stop acting like old-fashioned, stiff upper lipped, white shirted, grey pin-stripe suited, 'my Dad's car is better then yours' children and be the so-called professional people you're supposed to be!

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7om
By Tom 7000
01st Jul 2011 11:03

Why we do it

Because. in order of importance

 

a) ICAEW say you have to

b) You need the CA pools cfwd   ie its practical

c) If we didnt do it no one would know when clients change, they dont tell you and we would all be calling old clients and wasting time

d) Yes its handy knowing about the fees history

e) Occasionally something else pops up thats interesting and can jump to position one on the list eg  we qualified the accounts last year with a disclaimer of opinion as work in progress  was undervalued by £3.5m and HMRC are investigating the company because of it

Just sometimes you never know what you are going to get.

Time for golf I think as its a nice day

 

tom

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By PhilipJG
01st Jul 2011 11:20

Cynical?

Surely you wouldn't expect a previous accountant to let on that the client was a pain in the neck/bad payer, or they might not be able to get rid of them; like giving a glowing reference to an employee you want to lose!

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By The Minion
01st Jul 2011 11:28

depends on the accountant

I have had it in the past where the previous accountant hasnt said anything in the letter, but called instead and given me a heads up on certain issues, but that hasnt happened for a while now!

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By miketombs
01st Jul 2011 11:29

My biggest gripe with these is.....

where the client hasn't expressly given permission for information to be released to the new accountant.

When we send professional clearance letters we include a letter from the client to the previous accountants authorising them to release any information we request. Generally, the (few!) we receive don't have that, so just get bounced back as we don't have authority to divuge confidentail information merely because another accountant asks for it.

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By RogerCB
01st Jul 2011 12:17

Clearance or enquiry

Surely the key point is that it is an enquiry letter, not a clearance letter and I guess that most accountants will sometimes have a conversation with the new accountant to amplify anything not put in the formal letter.

 

As to not being able to get rid of troublesome clients, in my experience it is quite easy - you tell them to go! 

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By ShirleyM
01st Jul 2011 12:21

Mike - its a sore point with us too

We have never, ever, received a client authorisation letter with a request for clearance, although we always send one ourselves!

We used to chase authorisation from the client ourself, but then wondered why we were making all the effort, so now we just bounce it back to the new accountants. The only exception is where we have sacked a client, or they are a royal PITA, then we may make the effort to get authorisation ourselves.

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By MarionMorrison
01st Jul 2011 13:04

The cowboy's lament

In theory we have no obligation to request authorisation, but always do.  Unless there is some explicit reason not to, I always ensure that new clients contact their old accountants directly.

When clients leave us, I want to know why and I'd like to think other firms do to.  I usually make a point of contacting departing clients to find out if they've any thoughts on departure (and to tell them they're welcome back when they've found life was sweeter with us).

Having said that, if I get a zero response from an old accountant, I carry on acting anyway (and nag for copies of stuff we do need). 

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By RobHam
01st Jul 2011 13:34

Change over info TWO years?

We have been advised that a limited company client is changing to a new accountant.  The reason is practical.  There are 2 companies and they want to deal with only one accountant.  Perfectly cordial relations with the client and staff.

The new accountant's letter asks for the usual changeover information.  Something which is puzzling is that for some things they are asking for details of the last TWO years - full accounts, TB, CT comps, directors' accounts.  Why would this be?  Do people think it is unreasonable to ask for more than the previous year's details?  After all the last year does contain all necessary carry over figures.    

Is there something more in this?

Thanks for all responses.

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By jon_griffey
01st Jul 2011 14:12

Info overload
There is a firm local to us that requests accounts, returns and comps for the last SIX years, as well as the usual exhaustive list of reliefs and elections. They are taking the p***. As far as I am concerned one year is sufficient. If they want any more than that then they need to ask the client.

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By cfm-taxassist
01st Jul 2011 16:49

Authority from (ex) clients

We too suffer from other accountants not enclosing authority from the client to release information.  Although the sample is thankfully small the problem seems almost universal.  We once had a case where a member of the client's staff authorised another accountant to approach us.  This was without the knowledge, and against the wishes of the client.  Where would we have stood if we had responded to this?

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By Arm266
01st Jul 2011 17:05

Professional clearance letters

I am not a member of the ICAEW but of another accounting body.

As I only deal with private individuals, it is very rare for me to even know whether the new client had a previous accountant, let alone know who so that I could contact him.  For private individuals, there is no reason to suppose that they had a previous accountant.

Occasionally, I am asked to re-submit the previous year's return and will agree, so then I do realise that there was a previous accountant, but always refuse to comment on the previous accountant's work, as I have no knowledge of the information provided to him and consider that it would be unethical for me to do so.

When, very occasionally, I receive requests addressed to me as the client's previous accountant, I always state that the client is free to move, as my Letter of Engagement only commits the client for each year at a time.  I rely on the quality of my work to retain the clients, hence the rare occasion that a client moves.

However, I do refuse to provide any paperwork from the previous year, as the client has the prior year tax return and there is a High Court ruling that all calculations remain the property of the accountant - there is no way I would hand over my calculations and reveal the specialist expertise I have built up over the years to another accountant!

I am not concerned about the new client's payment record, as I work for a fixed fee, payable in advance!  That is then placed into a client account until the work is complete.

From an outsiders perspective, I think that the ICAEW do need to rethink their rules.

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By jon_griffey
01st Jul 2011 17:29

Client authority
I don't find it a problem not having the client authority sent by the incoming accountant. In fact all the better, as it provides an opportunity to speak to the client "I just need to pop in and get you to sign an authority" and you have got a chance to talk them round.

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By sushunter
02nd Jul 2011 11:44

Request for client records

There has been much discussion about these requests but what would you consider to be a reasonable amount of information to request as part of the changeover?  Perhaps a guidance list could be produced by the ICAEW to avoid disagreement? What do you think?

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By Fmaat
02nd Jul 2011 20:07

Protocol

A simple protocol should be agreed by all recognised accountancy bodies. Since this is never going to happen, client should be able to collect  from his current accountant who should pass over what's needed by the new accountant when he wants to change . Obviously he is not going to get these unless settles his account. He can then take these to his new accountant. Simple as that. The newly appointed accounted can then look at these to decide for himself whether he needs clearance from the previous accountant,  or whether there is information missing from these, and inform his client accordingly. If it's courtesy that's called for he can still write to the previous accountant enclosing client's authorisation to inform that he's now the new accountant. Simple as that, somethings are not meant to be made simple!! are they!!??.

 

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By anndartnall
05th Jul 2011 09:50

No cient authorisation to change

I have had instances where an incoming accountant has sent no corroborating letter or countersignature from the client with their letter. I checked with CIMA and concluded that under the Data Protection laws, I can't even reply to the incoming accountant to tell them what is required because to do so would reveal that said client was previously serviced by me (fishing trip) and I certainly don't hand over their private information without proof I can put on file that this authorisation procedure has been completed properly.

Maybe my attitude is tough, but all my incoming clients are provided with a letter to sign and send on to their old accountants which specifically introduces me. I then check with them that it has been posted before sending my courtesy letter to the old accountant.

By the way, I have had an AAT trying to tell me that they wanted 3 years acounts, TB, bank recon etc and that this was industry standard. I sent the 2 on the TB, 1 accounts, 1 CT & 1 SATR and then said that if they wanted any more they would have to pay! That shut them up....

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PAH Accounting Devizes Wiltshire
By Phil Hendy
06th Jul 2011 22:44

Usual problems with unqualified or lower bodies

I tend not get any issues with client authorities as I tell my clients to email or send a letter to the outgoing accountant themselves. I provide a template if necessary. This is usually not a problem. I am also doing a lot more of these by email and copying the client in, and asking them to contact the client direct in the email cover.

The biggest problem I have when requesting transfer information is from 'accountants' that are not members of the CCAB bodies. Some are 'qualified' and others are not at all qualified. The information requested is usually either too little or too much! (I would add that this is not for all of this type just a minority!)

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By Fmaat
08th Jul 2011 21:02

Guidance, rules, templates, yes, but no patronising humbug pleas

"guidance and rules – at least in so far as is relevant to members of ICAEW. I would expect guidance from the other professional to be largely comparable."  I presume means that there is a practice issue which is better regulated than not. 
 It could be that some minority "accountants" tend not get any issues with client authorities.. and they're  also doing a lot more of these by email and copying the client in, and asking them to contact the client direct in the email cover
I too tend not to get any issues with client authorisation (Please note the "s" ; "z" is used in the US English) However I've witnessed  in the old days  ACAs at the prospect of losing a client to  ACCAs discouragingly commenting to the client "they're not chartered".  Since then I've  witnessed CCAB qualified "accountants" steadfastly refusing transfer to Non-CCAB because "Welllll they're not chartered". My answer to the client "Whilst I would never belittle a professional qualification, in the circumstances this is just a self serving humbug". That shut them up.
I would hasten to act these are very minority cases with only annoying/niggly effect.

 

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Judi Castille senior partner of SP Consultancy LLP Kent, company formations and tax structures
By freelance32
11th Jul 2011 13:07

Clearance

 In my world I , non qualified before everyone bangs on about this, I write to ex-accountant and request fundamental information to be able to transition the clients affairs from them to my firm.  Most accountants are very helpful, some - mainly chartered, are not.  But then with the help of the client, HMRC we are able to draw up the accounts etc..so witholding tax data is not really a smart thing to do, as we would advice the HMRC that information was being witheld andthe accounts would reflect this if we were unable to ascertain from existing data.  

 

For my part, if we do pass clients over , not becuase we loose them through shoddy work or fees - but normally due to moving to another part of UK, or maybe through joining a networking group and its tit[***] for tat business, or maybe just that we feel we dont wish to act anymore - maybe going back to sole trader - which we dont deal with, so have closed Corp Company and passed over to our sole trader contact, we supply data downloads from software re prior year, journals, full sets of accounts inc CT comps, asset registers etc.  Our ex- client respected us whilst we acted, so I pass them over with a professional severence and this also helps the new accountant get on with the job in hand...we have no axe to grind.

 

Re clearance - I decide if I want to act for the client by interviewing the client, getting to know their business and spending time with them. if after a few visits, phone and email discussions we both feel happy, I then go ahead and ask for previous accountants details and issue letter.  Sometimes clients dont want us to write - we find out why and sometimes its due to a bad realtionship for whatever reasons, and often when we write - we never get a response or sometimes we even get a rude phone call or letter back.  If that is the case and the comments have little professional grounding, that is clients acted professionaly, accountant hasnt, then i ignore and go ahead on the basis of infomration we can retrieve, and the HMRC are notified accordingly.  My clients wishes come first and if they move accountant, then I make sure I continue to act for the client until the new agent has all they require.

I wish the profession would stop squabbling and get down to whats important - accurate reporting of accounts and tax...professionalism and honouring what your clients want.  They move accountants for any reason they think fit - so if its fees - well its fees, if its attitude - so be it...being part of the ACCA or any body doesnt override in my world - common sense.  For a  recent cleint, moving to the midlands, we are dealing through email with the new accountant, regular communication and good old-fashioned teelphone calls - much easier and quite honestly - whats the problem!

 

 

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By Davros2104
14th Jul 2011 22:05

Charges for supplying information

A few years back I came across a firm charging a new client of ours £500 to send us copies of the previous accounts, tax returns working papers etc... They refused to release the information until the fee was paid!!

ICAEW advised a reasonable fee for the supply of the information was acceptable!  I can't see £500 being reasonable though?

Anyone else come across charges for supply of information?

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By ShirleyM
15th Jul 2011 08:57

Yes

A few years back a London accountant wanted to charge our new client a similar fee for handover of records. It's so long ago I cannot remember how we got around it. We have never had anyone else try to charge.

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