A CA's guide to avoiding complaints
The ICAS Investigations Team has prepared a series of short articles to help members avoid common complaint issues that can arise over the course of a client relationship.
If you would like to speak to someone in the Investigations Team regarding a potential issue or complaint, please contact our helpline on: 0131 347 0271 or send an email to: email@example.com
Common complaints: providing financial references to lenders
Great care must be taken by CAs who are asked by a lender to comment on a client’s ability to service a loan. Taking account of the level of trust which lenders place in CAs, the ICAS Investigation Committee is likely to take strong measures when faced with evidence that a CA has provided incorrect or misleading information to a lender.
This article highlights a CA’s ethical obligations when providing a financial reference to a lender, setting out a number of steps which can be taken to minimise the risk of a complaint being made.
- CAs must be straightforward and honest when dealing with lenders.
- Positive statements must be based on personal knowledge.
- Ask whether the information provides the lender with a true and fair view of the client’s finances.
- A reference should not be provided if the risks to the CA are too great.
The ethical requirement
Section 110 of the Code of Ethics sets out the fundamental principle of integrity, which requires all CAs to be straightforward and honest when dealing with third parties. A CA’s integrity is reflected in the letters and reports which the CA is willing to sign for a client. Section 110.2 makes it clear that there should be no association with information which is:
- Materially false or misleading
- Furnished recklessly
- Omits or obscures information
Each of these may become relevant to a CA when asked to report to a lender.
Materially false or misleading information
It should be obvious to all CAs that they must not make false or misleading statements to a lender. The risk of doing so become greater if the CA is unsure exactly what information the lender is requesting; or if the CA’s knowledge of the client is not up to date. If steps cannot be taken to eliminate the risk of providing false or misleading information, the CA should either decline to express a view, or should include sufficiently clear qualifications on the information provided.
Information furnished recklessly
The Investigation Committee has considered complaints where CAs were too willing to place reliance on information provided by the client. While a client’s numbers may seem logical based on everything else the CA knows, positive statements should only be made when based on actual knowledge. If the lender’s request requires the CA to exercise professional judgement, then the limits of this should be clearly stated, with supporting documentation retained for future reference.
CAs must take particular care if asked to comment on a client’s future income. No amount of enquiry can provide the assurance needed to confirm that a client will have sufficient income to service a loan. It must be clear that the reference is limited to the client’s past or present finances.
Best practice is to base the reference on amounts reported in statutory returns, for example statutory accounts or personal tax returns filed with HMRC. In the rare case that a lender's request deviates form this, CAs should exercise caution, ensuring at all times that limitations in the scope of the response, or the work undertaken in providing the response are made clear, to allow the lender to assess the risks.
Omitting or obscuring information
An argument that a reference was ‘technically correct’ is unlikely to find favour with the Investigation Committee if there is evidence that the CA was aware, or should have been aware, that the lender was not receiving a true and fair picture of the client’s finances. Based on their complete knowledge of the client, CAs may also need to consider the questions which the lender hasn’t asked, if the answers to these would likely influence the decision to lend.
All CAs want happy clients. Therefore, it becomes an issue of risk management, involving control of the expectations of both the client and the lender. If the CA gets that right, there should be no cause for complaint.
There are a number of steps which CAs can take to minimise the risks involved with financial references:
- Always respond to references in writing, using clear and unambiguous wording.
- Make sure you have consent to the release of information, bearing in mind the possibility that that the request may cover financial information belonging to more than one party (e.g. a husband and wife partnership).
- Take particular care when partnership information has been requested, ensuring that information about other partners is not inadvertently disclosed.
- If asked to complete a lender’s standard form, apply manual amendments to avoid responses which could be misleading. If necessary, use your own style of report.
- Avoid implied contractual situations. A normal lending reference should require a CA to do little or no work and there should be no charge for this service. If it is necessary to charge because of the work involved (e.g. if projections are required), this should be agreed at the outset with the client and be subject of a specific engagement letter. The lender should not normally be party to the contract.
- Do not provide a reference if the sums of money involved create an unreasonable level of risk (e.g. in event of default and a claim by the lender). There is no obligation on CAs to provide references.
- Unless over-ridden by any engagement letter, a financial reference should always include a disclaimer of liability statement specifying the extent of the report and not relieving the lender from any other obligation or duty it may have.
- Exercise greater caution when dealing with new clients, or with clients who are exerting undue pressure.
The ICAS General Practices and Procedures Manual at section 11.4 provides more detail on the common pitfalls, and also includes style wording. Eligible firms have free online access to this resource. If you haven’t yet registered, you can do so at https://www.icas.com/member-benefits/general-practice-procedures-manual where you can also purchase access if not eligible. Further assistance may also be available from our Practice Support Department by telephoning +44 (0)131-347-0249 or emailing firstname.lastname@example.org.
Common complaints: Changes in professional appointment
Whether taking on a new client, or bidding farewell to one, whatever the reason, all CAs in practice will have encountered changes in professional appointments. But did you know this simple practice is one of the most common areas of complaint? This article takes a look at a CA’s obligations when a client changes accountant and what can be done to safeguard against a complaint.
- CAs must ensure that they meet their ethical obligations when dealing with changes in professional appointments.
- All incoming accountants are required to contact the outgoing accountant for professional clearance.
- Professional clearance requests need to be responded to promptly even where client fees are outstanding.
- A request for professional clearance can be separated out from a request for handover of client information.
What are the Code of Ethics requirements?
The Code of Ethics section 210 ‘Professional Appointments’ requires an incoming accountant to communicate with his or her predecessor to enquire if there are any reasons that they should be aware of, when deciding to accept a new client. Let’s be clear, the professional clearance enquiry is not a request for consent from the former accountant to take on a client, but it is one way to identify if there are any potential threats to the fundamental principles, from taking the client on. Failure by the incoming accountant to demonstrate that he or she has communicated with the outgoing accountant may amount to a breach of the Code and could result in a disciplinary complaint being considered.
Ensure you have client consent to communicate
Before responding, the outgoing accountant should ensure that he or she has the appropriate consent from the client to reply, to avoid a complaint that they have breached client confidentiality. Where a client refuses to give such consent, this should be relayed to the incoming accountant to let them consider the implications.
Where the client consents to communication between the parties, the outgoing accountant is obliged under the Code to respond promptly to all requests for professional clearance. Importantly, outstanding fees are not a reason to withhold professional clearance, but can be referred to within the response. A failure to respond, or undue delay in responding, is a common reason for complaint against CAs and has led to disciplinary action in the past.
Distinguish from a request for handover of client information
The professional clearance enquiry is not the same as a request for the handover of client information, which, even if dealt with in the same letter, is a separate matter. Contrary, to the position of professional clearance, outstanding fees may be a reason to withhold the provision of handover information relating to the client’s affairs, for instance by exercising a right of lien over client records. However, liens can be legally complicated and care should be taken to avoid a complaint that a lien is being exercised when not permitted. Further details on exercising a right of lien over a client’s records can be found in the Exercising a Right of Lien helpsheet.
Don’t discuss money laundering concerns
The Code is clear that an incoming accountant should not ask the outgoing accountant if he or she has reported suspicions of money laundering or terrorism. For the avoidance of doubt, responding to such requests could amount to tipping off and should therefore never be given. Yet to balance professional obligations, it may still be appropriate to include a factual reference to the issue of concern without identifying that a suspicious activity report has been, or may be, made. In such circumstances, CAs are recommended to seek advice from ICAS or take independent legal advice before formulating the response.
Follow up non-responses
Where a professional clearance request goes unanswered, the incoming accountant should take steps to follow up the matter. For instance, by resending the request by recorded delivery service, stating an intention to accept the engagement in the absence of a reply within a specific and reasonable period. While the incoming accountant would then be entitled to assume that the outgoing accountant’s silence implies there was no adverse comment to be made, this does not obviate the obligation on a CA to consider all circumstances. Factors which may affect a decision to act are discussed in greater detail in the Ethical Matters for Consideration in Relation to Engagement and Disengagement Procedures helpsheet and also in the General Practice Procedures Manual. Similarly, it does not negate the outgoing accountant’s obligation to respond to professional clearance and CAs experiencing difficulties in obtaining a response are entitled to raise their concerns with ICAS.
Further assistance on this matter including support materials is also available from our Practice Support Department by telephoning +44 (0)131-347-0249 or emailing email@example.com. Questions can also be put to the ethics helpline on +44 (0)131-347-0271.
Top tips to avoid complaints related to Practicing Certificates
Each year ICAS receives complaints of Members practising in the absence of a Practising Certificate (PC), in breach of the Public Practice Regulations.
In recent years, the Investigation Committee has disciplined a number of CAs for practising without a PC, with disciplinary sanctions ranging from a formal written warning to an order of reprimand at the higher end of the scale. With findings carrying a financial penalty and publicity of the outcome, the consequences for CAs not complying with the requirements can be far-reaching.
This article takes a look at a CA’s obligations to hold a PC and key points to consider to avoid falling foul of practising without a PC.
When is a PC Required?
In the most straight-forward of cases, if you are planning to set up your own accountancy business, a PC is always required. It is important that if you are a principal in a firm providing accountancy or related services, or you intend to set up your business in this way, you contact ICAS to obtain a valid PC to cover your business activities and meet the requirement to hold professional indemnity insurance (PII).
Yet, CAs are often under the impression that they do not require a PC unless they are a principal in an accounting firm; which is not the case. Generally speaking, if a CA provides accountancy or related services to someone other than their employer, and are paid for the services, then they are deemed to be in public practice and are required to hold a PC to cover their work.
The remainder of this article covers some of the common misconceptions about when a PC is required.
A common misunderstanding is when work is undertaken for charities on a voluntary basis. CAs do not require a PC if they provide accountancy services to small charitable bodies, or to similar non-profit making bodies, as long as:
- they are not conducting the work ‘by way of business’;
- are either carrying out the work free of charge, or for a nominal fee of £100 or less per engagement; and
- are subject to a maximum of ten of these type of appointments in a year; If the CA does not meet all the above requirements or undertakes more than 10 appointments in one year, then they will trigger the need for a PC.
The CA should ensure that they have the professional knowledge and skill at the level required for any voluntary work that they undertake.
It is possible for CAs to carry out an independent examination for a small charitable body without a PC, as long as the body qualifies as small (currently defined as gross income of £500,000 or less) and the work is undertaken without charge or for a nominal fee of £100 or less, subject to the maximum limit of ten voluntary appointments as above. Where such work is carried out in the absence of a PC, it is important to inform the trustees in writing if similarly, no PII cover is held. Failure to do so could potentially lead to a complaint being raised against the CA.
Audit work requires additional authorisation
It is important that no audit work is ever undertaken in the absence of a PC. Not only does audit work always requires a CA to hold a PC, but additional authorisations are needed to be an auditor. In the UK only Registered Auditors can conduct audit work. There are no exceptions to this rule. Further guidance on becoming a Registered Auditor can be found at icas.com.
Subcontractor and consultant roles are more complicated as there are many different variations in these type of arrangements. Whether a CA requires a PC depends on the nature of the contract with their firm or client and who is bearing the risk if something goes wrong.
In simple terms, if the CA bears the risk, then a PC is required. If the firm/client bears the risk, this would indicate that they are taking responsibility for the CA’s work, akin to an employment contract, and it is less likely that a PC would be required. In a bid to safeguard against a complaint of practising without a PC, CAs are encouraged to contact ICAS for advice if there is any doubt over whether a PC is required.
CAs are routinely asked to accept board appointments due to the well-rounded skill set they possess. CAs are not considered to be engaging in practice if they act as a trustee, treasurer, committee member or board member. In these types of roles, Members are considered to be acting as an ‘officer’ of the entity in question and therefore are not ‘in practice’ and do not require a PC.
Further advice on whether a PC is required, including answers to commonly asked questions, is available at icas.com.
Top tips to avoid fee complaints
ICAS’ Investigation Committee is becoming increasingly concerned about a rise in the number of people complaining about the way they’ve been invoiced by their accountant. In particular, people are objecting to feeing arrangements which they claim not to understand and which seem to financially penalise clients looking to change accountant.
In addition to taking a closer look at the issues, this article provides practical information on how fee complaints can be avoided.
- CAs must ensure that they meet their ethical obligations when invoicing clients.
- The basis for fees should be discussed and agreed with clients at the earliest opportunity.
- Clear communication is crucial where fees aren’t being charged on a ‘time and line’ basis.
- Best practice is to set out invoicing arrangements in a letter of engagement.
What are the Code of Ethics requirements?
Fee complaints often occupy a grey area between commercial contractual arrangements and the ethical obligations of a CA. In general, the Committee won’t consider complaints which focus solely on the level of fees charged. As is clear from Section 240 of the ICAS Code of Ethics, it is for accountants and their clients to negotiate and agree terms for their relationship:
“The Institute does not set charge-out rates or otherwise prescribe the basis for calculating fees, nor does it ordinarily investigate complaints relating solely to the quantum of fees charged”.
While the amount of fees may not be considered, Section 240 does set clear parameters, leading the Committee to ask the following key questions when a fee related complaint is received:
- Was the client adequately informed of the basis on which fees would be charged?
- Is there a letter of engagement or other evidence of an agreement with the client?
- Was the client promptly notified of an increase to a previous fee estimate?
- Do the terms clearly explain the financial implications of disengagement?
Case example - retainer fees
In recent years, the Committee has considered a number of invoicing arrangements which depart from the traditional ‘time and line’ method of charging.
One example is feeing clients on a ‘retainer’ basis; clients pay a monthly fee which covers any work undertaken by the accountant in that particular month (services may or may not be restricted in scope).
While there is nothing inherently unethical about such an arrangement, it can carry an increased risk of complaint, as illustrated by the following example:
- CA is engaged to produce annual accounts for a limited company client with a September year-end.
- Fees are paid monthly on ‘retainer’ basis.
- The client decides to terminate the engagement in July.
- The client complains when the accountant confirms that no work on the accounts has been undertaken and that the six monthly fees will not be repaid to the client.
- Terms of business do not make it clear what happens on termination of the engagement.
In a bid to safeguard client relationships and avoid the potential for complaint, the Committee strongly encourages all CAs to review their feeing arrangements in light of the requirements of Section 240 of the Code of Ethics; especially where fees are being charged other than on a time and line basis.
How best should CAs deal with fee disputes?
It’s unrealistic to think that no fee will ever be disputed. Merited or not, CAs are encouraged to take proactive steps to resolve fee disputes.
CAs are reminded that they are obliged by Sections 240.4D and 240.4E to take certain steps to deal directly with fee disputes – e.g. by providing the client with “such details as are reasonable to enable the client to understand the basis on which the fee account has been prepared”.
If the client is unhappy with the level of the fees, it may be appropriate to bring their attention to the ICAS Fee Arbitration Scheme.
Further information on fees is available in the General Practice Procedures Manual, which can be accessed for free by eligible ICAS firms.
If you have any questions in relation to a fee dispute, please contact the Investigations Department on 0131-347-0271.
Top tips to cut client communication complaints
A common feature of complaints received by the ICAS Investigations Team is the claim that a Member has failed to respond to their client or a fellow accountant in a timely and courteous manner.
The aim of this article is to outline simple steps that can be taken to ensure clients are satisfied with the level of communication they receive from their accountant, and also to emphasise the risks of failing to communicate with ICAS, or refusing to co-operate with the investigation of a complaint.
We are confident that if all our Members take note of the points highlighted; communication-related complaints received at ICAS will fall significantly.
- ‘Failure to respond’ a common complaint area.
- Adopt some simple rules to ensure clients are satisfied.
- If in doubt, contact the ICAS Investigations Team
Establish realistic service expectations
Define service parameters at the outset of the engagement and eliminate any expectation gaps at the beginning of your client relationship. Making sure you’re all on the same page is a good way of preventing issues before they even begin.
Co-operate with other accountants
Issues often arise when a client decides to change accountant. Whilst we appreciate that it may be frustrating that the client has decided to terminate your relationship; this doesn’t mean that communications from a fellow accountant should be ignored. All of our Members need to remember that the Code of Ethics requires an outgoing accountant to co-operate with the incoming accountant.
Be clear about right of lien
It is important to note that if you intend to exercise a right of lien over client records, this should be explained clearly to the client or the new accountant at the earliest opportunity to avoid matters escalating. If you have any doubts over rights of lien, please consult our Right of Lien Helpsheet.
How to respond to challenging clients
We sometimes have to deal with perplexing clients who never appear to be satisfied with the level of communication they receive. Be assured that we know it is not realistic to expect you to answer emails sent in the middle of the night or to pick up every call you may receive from a particularly demanding client. In these circumstances, we would expect you to provide these clients with a reasonable level of response. If you genuinely consider that you can’t provide a detailed response immediately, consider issuing a holding response, and be sure to give the client a realistic understanding of when their query will be addressed in full.
Establish a second point of contact
It is a good idea to have a think about who the client can speak to in your office in your absence. It can be very useful to give clients contact details for other members of staff who can assist them with their affairs. If even their query can’t be answered, a client is likely to be happier if there’s someone to speak to in your office.
Co-operate with our team
In a small number of cases we find that Members have not co-operated with the Investigations Team and have ignored the Case Officer’s correspondence when a complaint has been made. By failing to co-operate with a member of the Investigations Team, Members are in breach of the ICAS Investigation Regulations and could be liable to disciplinary action. In some cases Members have been excluded from membership for their failures to respond.
Please don’t stick your head in the sand, as the complaint won’t go away without your input and assistance.
Respond in good time
Please ensure that if you do receive a complaint from the Investigations Team at ICAS, you respond within the stipulated timescales and assist the Case Officer as much as you can. This will demonstrate your willingness to co-operate with the investigation.
We believe that by drawing your attention to the simple steps outlined above, the possibility of you becoming subject to an ICAS investigation or being subject to a disciplinary action will be significantly reduced
The Investigations Team at ICAS provides assistance to Members and also offers ethical advice. If you are experiencing any communication problems or have any concerns, please contact the team for advice at the earliest opportunity on 0131 347 0271.