Transferring Client Records as a Firm Changes

by MICPA | Jun 03, 2014   ()

This column highlights issues and questions submitted to the MICPA Professional Ethics Task Force. Responses may not consider all of the unique circumstances that are part of an ethical inquiry.

Q. What are the ethical considerations when transferring client records when there is a change in the CPA firm structure?

A. The MICPA Professional Ethics Task Force has found itself responding to issues dealing with the transfer of client records to or from unrelated CPA firms. While practitioners have been diligent in providing necessary client information to complete such an exchange, the ethical considerations that need to be adhered to are often times not considered.

The AICPA Code of Professional Conduct provides us with the needed direction in ET-Section 1.700.001, “Confidential Client Information” and ET-Section 1.400, “Acts Discreditable – Response to requests by clients and former clients for records”.

The circumstances encompassed in this transfer situation, more often than not, can be described in the following situations:

  1. Sale of an accounting practice.
  2. Purchase of an accounting practice.
  3. Merger of two or more accounting practices.
  4. Retirement of a CPA practitioner.
  5. Death of a practitioner.
ET-Section 1.700.050 reminds the practitioner that any confidential client information shall not be disclosed without the client first providing their unequivocal consent. The consent should be in writing and made part of the client’s permanent records. A suggested format could be as follows:

Consent is hereby given to [Name] to release to [Name], who is doing business as [Entity], with all requested documentation and information contained in our client files. This Consent is effective for all information dated after [Date]. I/We understand that this transfer will be completed on or after receipt of this consent form.

Taxpayer/Entity: [Signature]
Entity Federal ID #: [Number]
Spouse (if applicable): [Signature]
Date: [Date]

ET-Section 1.400.200 defines the various categories of client records and the conditions a member must adhere to when responding to a client’s request for this information, or in this case, transfer of records.

Applying these code sections to our topic, a practitioner should notify all current clients of retirement or the sale of his or her accounting practice to another practice entity prior to the actual transfer date. Too often practitioners will seek to complete the sale or acquisition of a practice and notify the clients after it is completed. Such a situation could be an ethics violation of ET-Section 1.700.050 … a breach of client confidentiality. However, in certain situations, making notification prior to the actual transfer date may not be realistic; but notification should be made as timely as possible.

Should a practitioner or existing practice entity proceed to merge with another practitioner(s), the client base of both practice structures need to be notified of the impending “marriage” of the practice units. While this may be considered a “non-issue” by some members, the confidentiality concerns still must be addressed in order to avoid any possible violations as to disclosure and exchange of any private business or personal information amongst the members of the new firm.

Finally, if a practitioner should pass away, the family (assuming there are no remaining shareholders or partners) should contact legal counsel for the practitioner to effect notification of clients to return personal information and maintain the confidential nature of their accounting and tax records.

ET-Section 1.400 describes the type of accounting and tax information that should be returned to the client or transferred to the new practice unit. While this data is vital to all practitioners, any successor entity needs to follow the record retention and destruction policies of the former practitioner(s) for the appropriate period of time described in the former firm’s record retention policy.
Source: The Michigan Association of CPAs

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