Photography by Bryce Carithers

You’ve completed the CA Program, garnered experience in your chosen profession, and have decided to set yourself up in practice. These are exciting times, but some members fail to prepare adequately and find themselves the subject of complaints or in financial difficulty.

Rebecca Stickney and Kate Dixon, leaders of the professional conduct teams in New Zealand and Australia respectively, discuss how to safeguard against the common pitfalls members might experience when starting their own practice.

1. Inadequate documentation establishing practice structure

Ensuring you have the proper documentation to formalise the practice structure is an important first step. This could include executing shareholder or partnership agreements, company constitutions, trust deeds or other contracts.

“Engage a good lawyer to draft your founding documents and make sure you sign off the documentation,” says Stickney.

“We’ve seen a surprising number of cases where members have gone into business and they’ve engaged a lawyer to draft a document, but then nobody signs it.”

New Zealand sole practitioners need to have power of attorney arrangements.

2. Working outside your area of expertise

Members have an obligation to work within their area of expertise or competence.

“Ask yourself, are you ready to go into practice alone?” says Dixon. “We see cases where members are clearly out of their depth. If you don’t have the necessary expertise, upskill or work for a few more years in a firm until you are confident.”

Stickney says there’s often a lot of pressure for people, particularly those working in smaller communities, to take on work they may not be qualified to do. “They want to do well by their clients as there might be a lack of services in their communities, but you need to upskill before taking this work on.”

She says members venturing into auditing can be particularly at risk due its complexity, and the specific training and licences that may be required.

3. Failing to hold correct certificates and licences

CA ANZ requires all principals in public practice to hold a Certificate of Public Practice (CPP). Review the by-laws and NZICA rules to understand the requirements for offering accounting services to the public and what types of services come within that definition to check whether they need a CPP.

There are also other restricted areas of practice which require members to hold certain licences or accreditation. In New Zealand for example, this includes licensed and qualified audits and insolvency. In Australia for example, you need a registration to be a tax agent and may also need a registration to carry out audit work.

4. Inadequate quality management systems

Designing, documenting and implementing your system of quality management is an essential part of CA ANZ compliance and your risk management strategies. CA ANZ has toolkits available to help you develop an appropriate system of quality management.

5. Inadequate insurance

It is mandatory to hold professional indemnity insurance under both the by-laws and the NZICA rules if providing accounting services to the public.

“We’ve seen a surprising number of cases where members have gone into business and they’ve engaged a lawyer to draft a document, but then nobody signs it.”

6. Getting too big too quickly

Some new practitioners struggle to keep on top of the workload and client queries when the business grows too fast, particularly if there isn’t the staff to delegate to, says Stickney.

“Members need to ensure they have systems in place to deal with the level of workload or ensure they don’t accept engagements they cannot complete in a timely manner,” adds Dixon.

7. Insufficient technology and software

Ensuring you have the right technology and cybersecurity is also a must. You have a legal obligation to protect client information under privacy law, as well as confidentiality obligations.

Members working on their own also need to understand the types of accounting software available.

Stickney explains that a number of the audit complaints involving non-compliance with assurance standards have arisen due to poor workpapers and audit methodologies, where the member would have been better served had they used technologies such as Audit Assistant, Caseware or similar products.

8. Outdated engagement letters

Engagement letters are the foundation of all client relationships.

“They determine what you’re meant to do for the client, help you manage client expectations, give you rights to enforce debts and provide a pathway if there’s a dispute,” says Stickney.

“When taking on any clients in your new practice, terms of engagement need to be agreed upon before embarking on any work,” adds Dixon.

9. Poor communications with clients

A common complaint is that clients were not informed a new practitioner had taken over the firm or client base, which gives rise to a cornucopia of issues.

“For example, if you’ve bought a block of fees and you’re transitioning those clients into a different legal entity, their contract is with your new business, and new engagement letters are essential,” says Dixon.

10. Non-compliance with your tax obligations

Just as business owners setting up new businesses fail to put sufficient money aside for tax payments, so too have members.

“As a tax professional, failing to meet your tax obligations is a very serious matter,” says Dixon. “It is not in the public interest for CAs to be unable to manage their own affairs and yet be advising clients.”

Stickney says they want members to succeed in business and in practice.

“When members establish their practices poorly, we can see a lot of issues could have been avoided with a bit more preparation. When members prepare well, they can have incredible careers.”

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Review CA ANZ’s member obligations here.