Do I have to Co-operate with my Successor when there are Unpaid Fees? Practitioners ask frequently about co-operating with their successor when there are unpaid fees. We refer you to Rule 303 in the CPABC Code of Professional Conduct, “Co-operation with successor”:
A registrant shall, upon written request of the client and on a timely basis, supply reasonable and necessary client information to the registrant’s successor, except where a registrant reasonably withholds such information pending the resolution of any outstanding accounts. Such co-operation is required with any successor accountant (“successor”), including a non-member.
A registrant (“predecessor”) on an engagement shall co-operate with the successor on an engagement. The predecessor shall transfer promptly to the client or, on the client's instructions, to the successor, all property of the client which is in the predecessor’s possession or control, except where the predecessor reasonably exercises the right to place a lien on some or all records pending the resolution of any outstanding accounts. Such property shall be transferred in the medium in which it is maintained by the predecessor, or such other medium that is mutually agreeable, that will facilitate a timely and efficient transfer which best serves the client’s interests. Ordinarily, when electronic copies of the property of the client are readily available, the client’s interests will be best served when such information is provided as electronic data, rather than in printed form, provided that supplying the information in such a form will not violate licensing, copyright or similar legal agreements or proprietary rights.
The term “registrant” is used throughout the Code and means a designated member, registered CPA firm, a professional accounting corporation, or a student.
The additional guidance to Rule 303 is as follows:
Registrants are also reminded that the CPA Canada Handbook – Assurance includes requirements with respect to obtaining audit evidence related to opening balances. Professional courtesy dictates that the predecessor should co-operate with the successor for the purpose of meeting this requirement through discussion and review of working papers. In addition, the client’s interests are likely to be best served when the predecessor co-operates as fully as possible with successors for this purpose. Reasonable opportunity to review and discuss working papers does not preclude the use of appropriate waivers or releases. However, appropriate waivers or releases should not include requirements for confidentiality which would contravene the successor’s obligation to report breaches by another registrant pursuant to Rule 211 or prevent the successor from otherwise properly serving the best interests of the client.
- When a client decides, for any reason, to change from one professional service provider to another, the change should be facilitated on the basis of the following fundamental assumptions:
- The client's interests be placed ahead of the interests of the member or firm;
- The client is free to have work performed by the professional service provider of the client’s choice; and
- Professional courtesy and co operation be maintained in complying with the client's wishes.
- A predecessor should supply reasonable information to the successor about the client. Where the time and inconvenience in giving the information to the successor is not significant there should normally be no charge for this work.
- A reasonable request for information related to the client includes an opportunity for the successor to discuss with the predecessor the following:
- The client's accounting policies and consistency of application;
- The work carried out by the predecessor with respect to material balances in the client's financial statements; and
- The financial statement groupings and account balance composition (for example, future income taxes) where the client does not have the information.
- Registrants providing professional services other than public accounting services may also receive requests for client information from successor service providers, provided that appropriate authorization has been provided by the client, the predecessor should supply reasonable information about the client to the successor. For example, it may be reasonable to supply the successor with:
- Financial statements, copies of wills and other relevant client information that was provided by a client in relation to the preparation of a financial plan;
- Flow charts, procedural manuals and other documentation provided by a client in relation to an engagement to develop systems and controls;
- Environmental scans, procedural manuals and other documentation provided by the client in relation to a management consulting service; and
- Tax information and balances required for a reorganization or other tax planning purpose.
- Rule 303 is not intended to require the transfer of certain proprietary information. Accordingly, predecessors are not expected to supply copies of audit or review programs and working papers or tax review documentation. Ordinarily, predecessors are not expected to supply copies of more than information related to the previous year's financial statements and applicable tax returns, unless the predecessor is remunerated for time and expenses to do so.
- Property of the client does not include information that is proprietary to the registrant, such as audit or review programs and working papers, review documentation, software or other proprietary material or information. Property of the client does include the work product that is prepared for the client by the service provider, unless the use and distribution of the work product is limited or otherwise protected by specific written agreement between the client and service provider.
- The medium that facilitates a timely and efficient transfer may vary depending on the nature of the engagement and the nature of the property of the client. For greater clarity and without limiting the general meaning of “property of the client”, such property includes original transaction documents (cheques, receipts, invoices, for example), banking records, ledgers and similar records. It would also ordinarily include tax returns and information related to financial statement groupings, account balance composition and continuity schedules that have been prepared by the predecessor accountant for the client’s benefit. In addition, it includes any of the foregoing or other property of the client that is readily available in electronic form where the client does not also have an electronic copy of the records or information.
- Property of the client that is readily available in electronic form” is not intended to include electronic information that cannot be easily segregated from proprietary information of the registrant. Basic financial information such as trial balances, leadsheets and continuity schedules should always be provided, but need not be provided electronically if they are incorporated into software that includes audit or review programs and working papers or tax review documentation. Accordingly, while registrants should always consider which readily available transfer medium will best serve the interests of the client, registrants are not required to provide client information electronically in every case.
- Paragraph 4 of the Guidance to Rule 218 includes information on facilitating the separation of information that is property of the client from proprietary information of the registrant. Such separation of information is recommended to facilitate the ease with which a predecessor can co-operate with a successor to properly serve the client’s interests.