The October 2016 Journal of Accountancy (official releases) announced new and revised ethics interpretations in the Code of Professional Conduct, which are summarized below:
- Transfer of Files and Return of Client Records in Sale, Transfer, Discontinuance or Acquisition of a Practice -- Interpretation of Rule 1.400, Acts Discreditable
- Disclosing Client Information in Connection with a Review or Acquisition of a Member’s Practice -- Interpretation of Rule 1.700, Confidential Client Information
This new interpretation (in part) lays out requirements for returning client files and transferring client records when a member sells, transfers, discontinues or acquires an accounting practice.
First, when a member sells or transfers an accounting practice to another party and will no longer retain any ownership in the practice, the new requirements are:
- Request in writing the client’s consent to transfer records to the successor firm / owner and indicate that if the client does not reply within 90 days, the member will presume consent is given (unless prohibited by law, including by state board regs.)
- The member should not transfer records until client consents or the 90 days has passed (shorter of the two)
- Unless the member had a different arrangement with the client, the member should return client records to the client as specified in the Records Request interpretation, i.e. client-provided and member-prepared records.
When the member is unable to contact the client, the member should retain the client’s records in a confidential manner in accordance with the firm’s retention policy, or any applicable regulatory or legal requirement, if longer.
If the member discontinues but does not sell or transfer the practice:
- The member should notify each current client.
- Unless the member had a different arrangement with the client, the member should return the client’s records to client as specified in the Records Request interpretation, i.e., client-provided and member-prepared records.
- When the member is unable to contact the client, the member should retain the client’s records in a confidential manner in accordance with the firm’s retention policy, or any applicable regulatory or legal requirements, if longer.
If a member is buying (not selling) all or part of another member’s practice, the Code requires the member to determine that –
- The seller has notified the firm’s clients that are being acquired of the sale, and
- those clients have consented to the continuation of professional services by the member acquiring the practice (or 90 days has lapsed since the client was notified, so consent may be presumed)
- those clients have not objected to the retention of any client files or records the member obtained as part of the purchase.
This new interpretation is effective June 30, 2017 with early implementation permitted.
With the adoption of the new interpretation, the AICPA’s PEEC also added a new FAQ to the document, Frequently Asked Questions: General Ethics Questions, which states that the member may communicate with the client electronically provided electronic communication is considered an acceptable form of written notice to the client under the applicable state law.
Disclosure of Commissions and Referral Fees -- Interpretation of Rule 1.520, Commissions and Referral Fees
Where a member is permitted to have a commission or referral fee, the Code requires the member to disclose the fee arrangement to his or her client; the previous rule did not specify how the disclosure was to be made.
A new interpretation requires the member to disclose the existence of the commission or referral fee arrangement to the client in writing. However, it continues to allow the member’s discretion in determining whether or not to disclose other related details such as the amount of the fee or other terms of the agreement.
The revised requirement applies to fee arrangements entered into on or after January 31, 2017.