A slow economy means slow-paying clients and increased client turnover. This can add up to tough ethical questions for accountants who prepare tax returns. One especially tough dilemma arises when a former client, who hasn't paid his bill, demands that copies of all his records be provided to his new accountant.
What would you do in that situation?
Do adhere to AICPA Professional Standards, ET section 501. This standard says holding back client records after they're requested is an act discreditable to the profession.
Don't forget the guidelines change, depending on whether the engagement is complete:
- If the engagement isn't completed, the CPA is required to return all records provided, regardless of whether or not fees have been paid. (ET section 501.01 defines client records as any accounting or other records belonging to the client and provided to the CPA by, or on behalf of, the client.)
- If the engagement is complete, the CPA should also be prepared to provide workpapers containing information not otherwise reflected in the client's books and records. But he or she can require payment before releasing these workpapers.
Do check the rules of the applicable state board of accountancy, since these can supersede the AICPA rules. Many state boards have expanded the definition of client records to include workpapers, such as adjusting journal entries, depreciation schedules and bank reconciliations that would not otherwise be available to the client.
Footnote: Failure to return client records on a timely basis is one of the three most common complaints made against small and midsize CPA firms. The other two are failure to exercise due professional care and conflicts of interest.