Disengagement process for corporate clients

Be clear on what happens when you disengage from a client

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Being clear on what happens on disengagement when you choose to resign as an accountant, or a client chooses to move to a new accountant, is important as it clarifies responsibilities from the outset.  The following can be used as a checklist or included within firms' policies, and it summarises the main actions you need to take.

Send a disengagement letter

For details of specific terms to do with disengagement, refer to relevant parts of your engagement letter.

An example of a disengagement letter wording can be found on page 152 in appendix D of Engagement letters for tax practitioners.

If your resignation is linked to a client’s suspicious activity, reporting or tax irregularities or fraud, the circumstances in which you disengage, such as timing and reasons mentioned in the engagement letter, should not tip the client off.

Return to a client all records of which they are the legal owner 

Records provided to you, based on which you prepared reports for the client, including accounts, tax returns or other reports (for example invoices, bank statements, till records, cash books), must be returned. The Code of Ethics and Conduct page 98 of the ACCA Rulebook  states:

320.13 Once a new accountant has been appointed, or on otherwise ceasing to hold office, the former accountant shall ensure that all books and papers belonging to his/her former client which are in the former accountant’s possession are promptly transferred, whether the new accountant or the client has requested them or not, except where the former accountant claims to exercise a lien or other security over them in respect of unpaid fees.

While the above section makes a general reference to a right of lien, past legal cases concluded that in matters concerning companies, right of lien is unenforceable, and this is the general view held by the profession. It may be necessary to seek legal advice to establish if right of lien can be exercised in your specific case.

Where there are records and reports that you prepared for the client as part of the engagement – that have not been given to the client already – then directors of companies have a duty to prepare financial accounts and keep relevant company records. Whether they prepare such records themselves or engage an external accountant to prepare them, such records belong to the company. Examples of records that a company is a legal owner of include financial accounts, nominal ledgers, schedules of debtors and creditors, fixed asset register, payroll records, tax records, and other records the client asked the accountant to prepare.

ACCA's regulation factsheets on transfer information and legal ownership of documents provide guidance on the minimum requirements for the data to be transferred. The factsheet does mention that non-payment of fees is not an acceptable reason for withholding information. Separate channels, such as debt collection and legal action, may be pursued as a separate matter for the fee issue.

The format in which records prepared by the accountant should be passed to the client is not defined. Records can be passed in electronic or paper form.

Where records are held by a third party, please consider this guidance

Respond to a clearance request from the new accountant

In order to follow ACCA rules and guidelines, you are required to:

  • request the client’s consent to disclose all relevant information to the new accountant
  • if the client does not give you consent to disclose all relevant information to the new accountant, you should state in your response to the clearance request that there may be other relevant information, but you are unable to disclose it
  • respond to the clearance request within a reasonable time. Reasonable time is not defined; however, your response should be sufficiently prompt to ensure continuity of the client’s affairs
  • transfer to the new accountant at least the last set of approved accounts and a detailed trial balance. This requirement applies even if the client owes you fees section (320.15, ACCA Rulebook).

There is no obligation on you to transfer to the new accountant any additional records. Transfer of additional records is at your discretion, and you may charge a fee for it (section 320.17, ACCA Rulebook).

When responding to requests, practitioners providing clearance may wish to consider using the following: ‘In so far as our legislative and ethical responsibilities allow us to reply, we are not aware of any professional reason why you should not accept…’

Keep your own client file

Ensure you keep your own client file (electronic or paper) stored for at least seven years under normal circumstances, to comply with record retention provisions as well as possible future subject access requests (SAR) in connection with any personal information you hold.

Correct run-off cover

If you are resigning as a result of selling your business, or retirement, ensure you have the correct run off cover in place for six years after you cease acting for the client. ACCA and Lockton have put together a range of articles and case studies to help members find out more about professional indemnity.