Professioanl Ethics - additional questions

nodgers1

Hi All

i need to answer some additional questions for my professional ethics sim, ws wondering if anyone can help, my mind has kinda gone blank, maybe its coz im 37 weeks pregnant and ready to pop any day!

the questions are

1. Are the following quotes acceptable or not acceptable under the AAT Guidelines on Professional Ethics:

a) “We will do the first year’s audit for no fee”.

b) “Part of our fee will be based on a percentage of the tax savings we identify for you”.

c) “If you introduce other Clients to us we will reduce your fee”.

2. Under what circumstances may a member accountant exercise a right of Lien over a Client’s document


any help would be appreciated

thanks

zara5034

Hi ya

As for question 1. I would say that "a" is acceptable but not 'b' and 'c'

You can't suggest that you are going to save clients money on thier tax bill, you can only work within the law and put forward the best tax position possible.

You may want to vet new clients yourself, if people think they will get a reward they may introduce clients that are dodgy.

And question 2. You can excersice the right of Lien when a client has not settled a bill and you are holding the paperwork for that years work. You can only excercise the right if the unsettled bill related directly to the paperwork you are holding (that they want back) so in other words you hand back the files etc as soon as the billed is settled, you cannot do this if the paperwork/files you hold is for a previous years work for which payment has been settled. This situation is quite common when a client moves to a new accountant and needs the paperwork for the new accountant to start work on. They think they will be able to get away with not settling the bill with the former accountant.

I hope this helps

Monsoon

nodgers1 wrote: »

Hi All

i need to answer some additional questions for my professional ethics sim, ws wondering if anyone can help, my mind has kinda gone blank, maybe its coz im 37 weeks pregnant and ready to pop any day!

the questions are

1. Are the following quotes acceptable or not acceptable under the AAT Guidelines on Professional Ethics:

a) “We will do the first year’s audit for no fee”.

b) “Part of our fee will be based on a percentage of the tax savings we identify for you”.

c) “If you introduce other Clients to us we will reduce your fee”.

2. Under what circumstances may a member accountant exercise a right of Lien over a Client’s document


any help would be appreciated

thanks

I'm being picky, but the answer to number 1 is "I'm AAT so I can't do Audit."
c) is not acceptable.
I think a) would violate Professional Indemnity Insurance (if you don't charge for it, the work isn't insured
I'm not sure on b); Value pricing is a legitimate strategy but you shouldn't guarantee you can save tax as, without doing the work, you can't know.

My actual answer is I don't know so I'm off to do some CPD.....!

I think it's good that the AAT are now covering this as a compulsory module, they never used to.

Regarding number 2, I'm under the impression that if the books belong to the client, I don't think you can ever hold a lien over them. E.g. their own bank statements, their own red ledger book that they have completed. You can hold lien over your own working papers and not release them to the new accountant if the bill for those papers hasn't been paid, but I don't believe you can hold a lien over the client's property.

zara5034

Hi Monsoon

I tend to disagree with your opinion about question 2, In the practice that I work for, it is normal to withhold the clients personal records such as bank statements etc, until the bill is settled.

I believe that the working papers are the legal property of the accountant and not the client anyway.

Would be great to hear if anyone else has an opinion on this.

I think you make some good points about question 1 though.

Cheers

sdv

Monsoon wrote: »

Regarding number 2, I'm under the impression that if the books belong to the client, I don't think you can ever hold a lien over them. E.g. their own bank statements, their own red ledger book that they have completed. You can hold lien over your own working papers and not release them to the new accountant if the bill for those papers hasn't been paid, but I don't believe you can hold a lien over the client's property.

zara5034 wrote: »

Hi Monsoon

I tend to disagree with your opinion about question 2, In the practice that I work for, it is normal to withhold the clients personal records such as bank statements etc, until the bill is settled.

Both of you are partially correct

Quote from AAT Ethics

" Section 255 Lien

255.1 When a member has, in the UK, carried out work on the documents of a client and the bill the member has rendered has not been paid, the member will have, under UK law, what is called a particular lien over those documents. This means that the member will be able to retain possession of the documents until his or her fees have been paid for the work carried out in relation to those documents.

255.2 The member will have a right of lien where all three of the following conditions exist:

(i) the documents retained are the property of the client and not of a third party
(ii) the documents have come into the member’s possession by proper means, and
(iii) work has been done by the member on the documents, the member has rendered
an adequately detailed fee note and the fees are outstanding in respect of that work.


For example, a member is not able to exercise a lien in respect of documents of the
same client on which past, remunerated work was carried out or where fees are
outstanding on the part of a company, but the work was carried out on documents
which are the personal property of a director. Further, special rules apply in relation
to the statutory books and accounting records of companies, and where documents
are claimed by an Administrator or Liquidator of a company, or the Official Receiver
or a Trustee in Bankruptcy. Further guidance can be obtained from the AAT’s
Professional Standards team or from a solicitor................................"





It is important to understand that work has been done on the documents. eg markings ticks on the bank statement for bank reconcilliations. If there are no ticks on the bank statements they can not be retained.

If the client has paid for the previous VAT qt. work, then an AAT Member can not retain the records or the work done by the AAT Member

zara5034 wrote: »

Hi Monsoon

I believe that the working papers are the legal property of the accountant and not the client anyway.

I believe that the working papers also belong to the AAT Member, read the guidence from the AAT Below

Section 254 Ownership of books and records

254.2 Where particular documents and records are not owned by the member they generally belongto the client. In determining whether documents and records belong to the member thefollowing considerations apply:

(i) the nature of the contract between the member and the client usually as evidenced
in an engagement letter

(ii) the capacity in which the member acts in relation to the client

(iii) the purpose for which the documents and records exist or are brought into being

(iv) local law.


254.3 As a general rule, under UK law, where the member is acting as a principal (and not as an agent) in relation to the client, only documents brought into being by the member on the specific instructions of the client belong to the client. Documents prepared, acquired or brought into being by the member, solely for the member’s own purpose as a principal, belong to the member. At times however the member may be acting as an agent for a client in which case any documents will generally be the property of the client.


254.4 In audit assignments, for example all documents prepared by the auditor solely for the purpose of carrying out the audit belong under UK law to the auditor. Whilst our members may be,involved in audit work, they are reminded that they are not permitted to act as auditors for limited companies or charities unless appropriately registered to do so, in the case of the UK, with the appropriate recognised professional body.

254.5 In accountancy work the question of ownership will depend on the nature of the work.

Accounting records and financial statements prepared for a client belong, under UK law to the client. A member’s working papers belong to the member.

254.6 In taxation work, the documents will normally belong to the client.

254.7 Where tax, investment or other advice is given to a client, the written advice, including supporting papers, belongs, under UK law, to the client, but a member’s working papers belong to the member.

254.8 Letters received by the member from the client, copies of letters from the member to the client and notes made by the member of discussions with the client belong, under UK law, to the member.

254.9 Ownership of copies of communications between the member and third parties depends on the relationship with the client. The guidance in paragraph 250X5.5 above will generally apply to such communications. If the member is acting as agent for the client (for example, in tax correspondence) letters to the member and copies of the member’s letters to the third party belong, under UK law to the client. However, where the member acts as principal, the communications will belong to the member.

Bluewednesday

There is a lot of discussion regarding this but I believe nodgers1 only had to do what was in the question i.e. go to the AAT guidelines and work it out.

I appreciate the position you are in nodgers1 but you have just asked others to basically finish your sim off for you!