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A client deciding to change accountants is a routine part of practice. There can be many reasons for a change, but managing the transition professionally is important. Rebecca Stickney, leader of CA ANZ’s Professional Conduct team in New Zealand, says client transfers are an inevitable part of practice.

“People move cities and they want to have an accountant in their area. Maybe they’re changing the nature of their business and they need a different kind of accountant, or the relationship has broken down.”

Kate Dixon, leader of CA ANZ’s Professional Conduct team in Australia, says client transfers can also occur where an accountant ceases to act for a client as a result of a conflict or potential conflict of interest.

Whether you are losing a client or taking on a new one, knowing your responsibilities as an accountant can help make the transfer smoother for everyone involved. Dixon points to the code of ethics – APES 110 Code of Ethics for Professional Accountants (including Independence Standards) in Australia and the NZICA Code of Ethics in New Zealand – which provides the ethical framework for managing client transfers.

“The code is designed around the fundamental principles, so you need to make sure they’re your North Star in everything you do,” says Stickney.

The code provides detailed rules and guidance regarding changes in professional appointments, and sets out obligations for both the proposed or incoming accountant and the existing one.

Decide whether to accept the engagement

Seeking professional clearance is one step in client and engagement acceptance procedures. As a first step, an incoming accountant needs to consider whether they can act for the client, or if accepting the engagement could create any threats to their compliance with the fundamental principles of the code of ethics.

“When an accountant is asked by a potential client to replace another accountant, they need to determine whether there are any reasons for not accepting the engagement,” says Stickney. “This obligation applies when you’ve been asked to take on a new engagement, you are tendering for new work or you are going to undertake complementary or additional work to that of another accountant.”

The types of threats that need to be considered include potential conflicts of interest or objectivity threats, and if the accountant has sufficient capacity or experience to undertake the assignment in accordance with the fundamental principle of professional competence and due care. These include any threats that could be posed to compliance with professional behaviour and integrity obligations, such as a client’s involvement in illegal or questionable activities.

“In terms of conflict, accountants need to consider a range of possible threats, including the potential for a self-interest threat, as well as the risk of conflict involving one of your existing clients or a member of your immediate family,” says Dixon.

A conflict does not always mean the engagement must be declined. In some cases, the code allows safeguards to be put in place so the engagement can proceed. Section R120.6 of the code of ethics sets out the different types of threats and how they could be addressed.

Communicating with the existing or predecessor accountant is one action that can help a member assess relevant safeguards and factors when accepting or declining an appointment, Dixon adds.

Start with client authority

Before any discussions take place with the existing accountant, the incoming accountant must obtain the client’s permission to initiate such contact. This ensures confidential information can be shared appropriately and allows the professional clearance process to begin.

“You need permission before you go ahead and make that contact and it is best if permission is sought and given in writing,” says Stickney.

Stickney also recommends keeping a written record throughout the transfer. Client authority forms, professional clearance correspondence, engagement letters, conflict checks and discussions about outstanding fees should all be documented.

“It’s a protective measure for both sets of accountants.”

Existing accountant’s responsibilities

When an existing or predecessor accountant receives a request for professional clearance, they must comply with the relevant laws and regulations, and provide information honestly and clearly.

“In New Zealand, there’s an obligation to communicate as the existing accountant and promptly reply, preferably in writing, advising whether there are any professional reasons the proposed accountant should not accept the appointment,” Stickney says. Dixon adds that in Australia, this is only a requirement for audit matters, although it is good practice for all types of engagements.

The existing accountant must also promptly transfer documents as per the client’s instructions and advise the client this has occurred, unless they have a legal right to withhold them, for example when claiming a possessory lien, in which case this should be communicated.

“An existing accountant should get the client’s consent before communicating with a proposed accountant to ensure compliance with confidentiality obligations,” explains Dixon.

Respond professionally

Finding out that a client is leaving can be disappointing, particularly after working together for many years. But Stickney says your response should be guided by professionalism, rather than emotion.

Where the relationship remains constructive, there can be value in discussing the reasons for the move. It is also important to make sure the client is aware of outstanding or part-completed work, any outstanding fees, any liens being claimed and how the transition will be handled. The objective should not be to persuade the client to stay, but to ensure the transfer is managed well.

“The professional clearance process is also about collegiality,” says Stickney. “It’s a terrible experience if another accountant suddenly starts working for that client at the same time as you. You’re incurring fees that you may have difficulty enforcing, there may be a mismatch in instructions and both accountants can end up working on the same engagement.”

Put the client’s interests first

A common challenge during a client transfer is when a client decides to leave before the work has been completed.

Stickney says, “This issue often arises with compilation and tax engagements, where the outgoing accountant may be well into the job when the relationship breaks down and the client appoints a new accountant.”

While clients have a right to appoint someone else, it may be in their interests and more cost effective for the current accountant to finish the engagement.

“The professional clearance process enables this situation to be considered between the accountants, and discussed and agreed with the client, if this is an appropriate approach in the circumstances.

“From a client experience point of view, this can reflect well on both CAs if they’re working collaboratively about an orderly transition to the new person,” she adds.

Common pitfalls

Most complaints about client transfers are not about the transfer itself, but how it is managed. A few common issues come up time and again that you should look out for:

1. Possessory liens and client records

“We get a lot of complaints about failure to provide books and records, including because of claimed liens,” says Dixon. “This includes withholding the statutory books and records of a company.”

Dixon says members should take particular care before withholding access to cloud accounting platforms such as Xero.

“One of the areas where there is often a dispute is around withholding access to accounting software subscriptions,” she says. “Members need to remember that these are books and records in the usual sense.”

Stickney notes that members are generally not entitled to withhold statutory books and records, and may only be entitled to retain records relating to unpaid fees for that year. Records from earlier years should generally be released.

2. Concerns about previous work

Clients can raise concerns about the previous accountant’s work. But Stickney says these situations often come back to fee disputes or disagreements over a possessory lien, rather than genuine concerns about competence.

Stickney explains that just because a new accountant would have handled something differently does not mean the previous accountant got it wrong. Different accountants can take different approaches, while still meeting professional standards.

“However, if there are reasonable concerns that the work of the prior accountant has not been at the level expected of a reasonable, competent chartered accountant, the new accountant should consider whether the matter needs to be raised with us or advise the client to get legal help.”

Dixon also points out that in Australia, tax agents need to remember that they have positive breach reporting obligations in relation to significant breaches of the Code of Professional Conduct in the Tax Agent Services Act 2009.

3. Communication breakdowns

A common problem is not replying promptly to a professional clearance request.

“Sometimes there’s a failure in communication between the two accountants where an existing accountant doesn’t respond promptly enough,” says Stickney. “A professional clearance request is left to linger for months, which can lead to disciplinary action.”

Responding quickly is important, but so is keeping the communication respectful.

“Sometimes the client relationship has broken down and the accountant may be fed up with their client,” says Stickney. “They may lose their professionalism in the way they’ve communicated back. Members should expect that anything they send to the new accountant may well be brought to the attention of the client.”

The focus should always be on a smooth transition.

“At the end of the day, clients have the right to choose whoever they want as their adviser – it’s part of the business,” says Stickney. “Be professional, be courteous, ensure a seamless transfer of records and hope that one day you’ll be the recipient of that same experience from another chartered accountant.”

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Take aways

Refresh your knowledge of your obligations in the code of ethics by visiting the CA ANZ website.

CA Library offers a range of ethical resources including the ninth edition of Business and Professional Ethics: For Directors, Executives & Accountants by Len Brooks and Paul Dunn.