What is a professional clearance letter?
Every contractor business has the right to choose their accountant and so there may come a time when you decide to change accountants. This is when a Professional Clearance Letter (PCL) is required, writes Graham Jenner of accounting specialists Jenner & Co.
What is a Professional Clearance letter?
It is letter from the new accountant to the outgoing accountant. The name suggests that the new accountant is obtaining some sort of authority from the existing accountant. However, the name is a misnomer and it should, more properly, be called a professional enquiry letter.
The new accountant is writing primarily in order to obtain information to enable them to make an informed decision whether or not it is appropriate to accept the appointment as the business’s accountant.
What is expected of contractors with the Professional Clearance Letter?
Once you have decided that you want the new accountant to act for you, they should ask for your authority to write to the existing accountant. They should also ask you to notify the outgoing accountant of your decision and authorise the existing accountant to reply to the professional clearance letter from the incoming accountant and ask that they cooperate with the incoming accountant, such as providing them with any necessary documents or information.
The new accountant needs to consider whether acceptance would create any threats to compliance with the fundamental principles of integrity, objectivity, competence, due care, confidentiality and professional behaviour needing to be upheld.
What will your old and new accountant consider?
The new accountant will consider not only the client and their relationship with the existing accountant but, also, the activities of the company.
There are certain factors which the existing accountant may inform the new accountant about which could and, indeed, should, prevent the new accountant from accepting the appointment. This would include matters such as fraud, tax evasion, accounting irregularities, and deliberate misleading of the accountant by the client.
Where there has been a dispute over fees, or the client has been willing but unable to settle outstanding fees, this will provide useful information to the new accountant. It does not mean that they won’t accept the appointment but they would want to satisfy themselves that they are not going to find themselves in the same situation.
Professional Clearance Letter documents, deadlines and fees
Within the PCL, the incoming accountant is likely to make the request for documents and information to assist them in taking over your accounting and taxation affairs. The outgoing accountant should be prepared to provide that information within a reasonable time scale and at no cost -- unless there is significant additional work to undertake in providing that information.
What does a Professional Clearance Letter contain or state, in terms of wording?
The letter itself is relatively short and to the point.
So it will typically include wording along the following lines:
“We would be grateful if you would provide us with details of any circumstances or information which we need to consider when deciding whether or not to formally accept this appointment.”
How to respond to a Professional Clearance Letter
It is worth noting that, in the same way that you have the right to change accountant, the prospective accountant has the right to refuse to act for you! This fact may give the impression that it‘s common for the incoming accountant to refuse the appointment because of something that the outgoing accountant discloses to the incoming accountant. In practise however, such refusal is very rare and the typical response to the PCL is along the following lines:
“We know of no reason, professional or otherwise, why you should not accept this appointment”
So contractors, if you decide to change accountant, you just need to be aware that the above process needs to be dealt with before they can formally act for you. Good luck!