Professional clearance when a client changes accountant

What the incoming accountant must do

ICAEW's Code of Ethics (R320.4) requires an accountant to decide whether there is any reason not to accept an engagement when asked to replace another accountant, when tendering for another accountant's work, or when taking on work that is additional to theirs. ICAEW's helpsheet on the incoming accountant (last reviewed November 2023) says the term professional clearance is a misnomer, because the existing accountant cannot give or withhold permission to act. The decision is the incoming accountant's.

AAT's Code of Professional Ethics (section 210) requires a licensed member asked to replace an existing accountant to determine whether there are professional or other reasons not to accept, and to obtain the client's permission, preferably in writing, before contacting the existing accountant.

The professional enquiry

1. Ask the client for consent

   Explain the duty to contact the existing accountant and ask for the client's authority, preferably in writing (ICAEW helpsheet).

2. Ask the client to tell the existing accountant

   The client confirms the change to the existing accountant and authorises them to cooperate.

3. Write to the existing accountant

   Ask for any issue or circumstance that might affect the decision to accept, and list the handover information wanted. ICAEW's helpsheet has an example letter in its appendix.

4. Chase a missing reply

   If there is no answer, ICAEW's Code (R320.6A) requires a letter by recorded delivery saying the appointment will be accepted unless a reply arrives within a specific and reasonable period. The helpsheet says a period of less than two weeks is unlikely to be reasonable (ICAEW).

5. Decide

   Weigh the reply, or the silence, with your own client acceptance checks and anti-money laundering due diligence.

What to ask for at handover

• The last accounts approved by the client and a detailed trial balance that agrees to them. ACCA's transfer information factsheet calls these reasonable transfer information, to be provided promptly and free of charge.
• Copies of the last tax returns and computations, with capital allowance pools, losses brought forward and the directors' loan account balance.
• The fixed asset register and schedules of debtors, creditors, accruals and prepayments.
• Reference numbers: UTRs, VAT number, PAYE and accounts office references, Companies House authentication code if the existing accountant holds it.
• VAT returns filed in the current period, payroll year-to-date figures and the CIS position.
• Any open HMRC enquiries, correspondence or disputes, and payment plans.
• Records belonging to the client, which go back to the client in any case.

What the existing accountant must do

ICAEW's Code (R320.7) requires the existing accountant to comply with the law governing the request and to give any information honestly and unambiguously. If the client refuses permission, the existing accountant reports that fact (R320.7A). Records must be transferred promptly on a reasonable request, subject to any particular lien for unpaid fees (R320.7C), and information the client cannot provide, whose absence might prejudice the client, is given promptly and normally without charge (R320.7D) (ICAEW Code of Ethics).

ICAEW's helpsheet adds that outstanding fees are not a reason to refuse to respond, though the existing accountant may mention them in the reply.

Money laundering and the handover

The incoming accountant should not ask whether the existing accountant has made a suspicious activity report, or whether they carried out identity checks. The ICAEW Code (320.5A2) says client identification is the incoming accountant's responsibility and cannot be delegated. The existing accountant must not disclose a report or make any disclosure that could amount to tipping off (R320.7B) (ICAEW Code of Ethics).

Questions