Professional Clearance Between Accountants

What Professional Clearance Establishes

An enquiry helps you discover facts that could affect the proposed appointment. It does not give the outgoing accountant a general power to approve or veto your engagement. A response is one input to the responsible member’s acceptance decision.

Section 320 of the APES 110 Code of Ethics distinguishes general appointment enquiries from specific audit or review requirements. Start by classifying the proposed work:

A forensic investigation is not automatically an audit or review of financial statements. Record the service actually proposed before selecting the procedure. The Australian provisions also cover a change involving an accountant who is not a member.

Confirm the Client and Authority to Communicate

Identify the client and the person entitled to authorise communication before asking for confidential information. For an entity, distinguish the entity from its directors, shareholders and other people whose transactions the investigation covers. A director’s involvement in a dispute does not by itself settle authority to disclose every person’s information.

Record the proposed services and the accountant to be contacted. Obtain client permission, preferably in writing, for the discussion normally contemplated by paragraph 320.5 A1. Specify the subject, recipient and purpose so both practices can understand its limits.

The outgoing member must consider the disclosure basis independently. Under AUST R114.3, client or other authorised permission operates subject to legal restrictions. A legal or professional duty or right can also permit disclosure. If relying on a basis other than client permission, record that basis and obtain legal advice where needed.

For a financial investigation, authority might cover discussing an earlier engagement’s scope and difficulties obtaining records. That does not automatically authorise release of unrelated personal information or privileged material. Resolve the scope with the authorised person before expanding the request.

Prepare the Incoming Accountant’s Enquiry

Describe the proposed appointment and ask for information that could affect acceptance. Keep the request separate from the later transfer of statements, analysis files and other records. CPA Australia’s client relationship guide explains the enquiry process and points members to correspondence resources.

Use these fields to prepare a request suited to the engagement. The example is fictional.

Replace the fictional details with verified particulars. Send the authority through an agreed channel and confirm that the request reaches the correct professional contact. A deadline in your letter does not establish a universal period after which silence grants clearance.

Respond as the Outgoing Accountant

Check the incoming accountant’s identity, proposed services and authority before disclosing client information. R320.7 requires compliance with the laws and regulations governing the request and a truthful, clear response. Confidentiality continues to govern what may be communicated.

Separate what you know from what someone alleges. For example, distinguish a documented failure to supply requested statements from an allegation that the client concealed an account. Identify a disputed allegation as disputed and describe the records supporting the facts you can disclose.

If the authority permits discussion of the earlier investigation but excludes a separate shareholder engagement, keep those subjects separate. Explain a restriction to the extent permitted, and seek clarification where it could change the response. Do not imply that a limited reply covers every possible concern.

Keep the request, authority and response together. Record the recipient and communication event, including any substantive telephone discussion. Correct a material factual error in the response through the permitted communication route and retain the correction with the original record.

Resolve Refused Permission or No Response

A refusal of client permission and an unanswered letter leave different questions to resolve. Record which event occurred before deciding your next step.

If the client refuses permission, ask for the reason and assess what that refusal prevents you from learning. Do not treat it as proof of misconduct. If the request remains unanswered, confirm receipt and contact details, then follow up through an appropriate channel. Silence alone supplies no finding that the client’s history is clear.

Where communication is not possible, R320.6 requires reasonable steps to obtain information about possible threats through other means. Depending on the appointment, these can include permitted third-party enquiries, information about senior management or those responsible for governance, and relevant background records. Record what each alternative establishes and what remains unresolved.

For an audit or review, apply R320.8 specifically. If the client fails or refuses to permit discussion, the predecessor must disclose that refusal to the proposed accountant, who must consider it carefully. The Code also contains an exception for specified circumstances involving non-compliance with laws and regulations, known as NOCLAR. Where the predecessor withdrew under the relevant provisions, R360.22 can require disclosure despite refused permission, unless law or regulation prohibits it.

An unresolved concern can require further information, safeguards or declining the engagement. Refer a concern needing wider ethical assessment to the responsible member before work proceeds on the assumption that an unanswered enquiry settled it.

Record Acceptance and the Handover Still Required

Keep the acceptance decision beside the professional information on which it relies. The record needs the proposed scope, enquiry and authority, response or alternative enquiries, concerns identified and the responsible member’s decision. List any outstanding information with its effect on the decision and who will obtain it.

Consider a fictional investigation for Morrow Fabrication Pty Ltd. The predecessor reports that two supplier-payment explanations remain disputed and that one account’s statements were never supplied. The incoming member records that information when deciding whether to accept the replacement investigation. Neither the enquiry nor its response transfers the missing statements or establishes that the disputed payments were improper.

Prepare a separate handover list for the source statements, earlier schedules and analysis required for the accepted work. Identify the owner or authorised custodian of each record, any disclosure restriction and whether the item has actually been received. Keep ownership-sensitive working papers distinct from client-supplied records.

For the statement-analysis stage, FinTrace saves forensic accountants time spent converting and reviewing supplied PDFs. Its searchable Excel ledger and findings report connect transactions and findings to PDF filenames and pages. Those outputs give the accepting professional access to the statement evidence when evaluating the investigation’s financial records.

Complete the acceptance record by stating accepted or declined, the member responsible and the reasons for that decision. For accepted work, confirm the agreed terms and identify the records still required before the affected work can proceed. A favourable professional response and a completed document handover are separate outcomes, each needing its own record.