Technical helpsheet outlining the considerations to be addressed when a significant change is made to the composition of a firm, such as the arrival or departure of a principal.
This helpsheet has been issued by ICAEW’s Ethics Advisory Service to help ICAEW members consider the implications of changes in a firm’s structure. Such changes may include the arrival or departure of a principal or changes in the ownership or control of a practice.
Members may also wish to refer to the following related helpsheets and guidance:
Changes in the composition of a firm occur for a variety of reasons including appointment or retirement of a principal, sale of a practice or even the sale or purchase of a block of fees (for further guidance see Buying and selling fees). In any such change in the composition of a firm, a wide range of considerations are needed, not least to ensure that clients are not disadvantaged. In the context of this helpsheet ‘firm’ is taken to refer to partnerships, limited liability partnerships (LLPs) and limited companies.
This helpsheet does not consider legal requirements that may be set out in any partnership agreement, contracts or governing documents which should be consulted prior to any change. Legal advice should be sought where appropriate.
Impact of a change in firm structure
When a firm changes structure, consideration should be given to whether it is still entitled to use the description ‘Chartered Accountants’, whether it is still supervised for anti-money laundering purposes and whether it is still entitled to undertake regulated work.
Impact on using the description ‘Chartered Accountants’
Where a firm which uses the ‘Chartered Accountants’ description changes structure, care should be taken to ensure that the firm is still entitled to use the description. Guidance is available on the webpage Use of the ‘Chartered Accountants’ description.
Impact on anti-money laundering supervision
ICAEW automatically provides anti-money laundering supervision for member firms through ICAEW’s Practice Assurance (PA) scheme.
Where the structure of a firm changes, consideration should be given as to whether the firm still meets the definition of a member firm - if not, automatic supervision will cease. The firm may nevertheless wish to apply to the ICAEW to join the PA scheme and register for anti-money laundering supervision.
Guidance is available on the Anti-money laundering supervision webpage.
Impact on regulated activities
Members should consider the impact of changes in a firm’s structure on eligibility to undertake regulated activities including audit, investment business (DPB) and probate.
Members should refer to the applicable regulations available on the regulations page of the website.
Notifications and updates
Firms need to notify the ICAEW of changes in practice structure. Details of how to notify the ICAEW are available in Your guide to maintaining your firm’s record.
Firms should ensure that letterheads and other practice stationery is updated to reflect the revised structure. Members should refer to the helpsheet Practice names and letterheads (for practising members) for guidance and can discuss their letterheads with the Firms Team on +44 (0)1908 248 250 or by e-mail email@example.com.
It is important to remember that clients are ordinarily those of the firm and not those of individual principals within the firm. As such clients usually remain with the firm when a principal leaves. Clients nevertheless have the right to choose their accountants and clients may subsequently leave the firm as a result of a change in composition.
Where the engagement partner or key points of contact within the firm change, such changes should be clearly communicated to clients so that they are kept informed and not disadvantaged by the changes. It is common practice to have a handover period to ensure that the new engagement partner is appropriately up to speed, although this may not always be possible.
Change in appointment
Where clients do end up moving to a new firm, the requirements of section 320 of the ICAEW Code of Ethics with regard to change in appointment should still be adhered to. Members should refer to the helpsheets Change of professional appointment – Outgoing accountant and Change of professional appointment – Incoming accountant for further details.
Depending on the appointment being ended, additional requirements apply, for example where an auditor resigns the appropriate procedures should be followed. Where members are resigning as auditors from non-public interest entities, the helpsheet Auditor resignation – Auditor responsibilities should be consulted.
A firm should inform its professional indemnity insurance (PII) provider of any changes in composition of the firm as required by the policy terms and conditions.
HMRC agent account
A firm may need to amend the details of their agent account with HMRC.
Considerations for departing principals or employees
A departing principal may be prohibited from acting for clients under the terms of a partnership agreement, governing documents or other restrictive covenants agreed to with the firm. Any such documents should be carefully reviewed and legal advice should be sought as appropriate.
Employees departing a firm should consider their ethical responsibilities under the ICAEW Code of Ethics. Specifically the fundamental principle of confidentiality should be adhered to. Paragraph R114.2 highlights that when a professional accountant changes employment or acquires a new client, they are entitled to use prior experience but shall not use or disclose any confidential information acquired or received as a result of a professional or business relationship. A client or address list is confidential to the practice concerned and should not be used by a former employee to promote the services of their new employer.
If in doubt seek advice
ICAEW members, affiliates, ICAEW students and staff in eligible firms with member firm access can discuss their specific situation with the Technical Advisory Service on +44 (0)1908 248 250 or via webchat.
- 01 Sep 2012 (11: 00 AM BST)
- First published
- 23 Sep 2021 (12: 00 AM BST)
- Changelog created, helpsheet converted to new template
- 23 Sep 2021 (12: 00 AM BST)
- Updates to links.
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ICAEW cannot accept responsibility for any person acting or refraining to act as a result of any material contained in this helpsheet. This helpsheet is designed to alert members to an important issue of general application. It is not intended to be a definitive statement covering all aspects but is a brief comment on a specific point.
ICAEW members have permission to use and reproduce this helpsheet on the following conditions:
- This permission is strictly limited to ICAEW members only who are using the helpsheet for guidance only.
- The helpsheet is to be reproduced for personal, non-commercial use only and is not for re-distribution.
For further details members are invited to telephone the Technical Advisory Service T +44 (0)1908 248250. The Technical Advisory Service comprises the technical enquiries, ethics advice, anti-money laundering and fraud helplines. For further details visit icaew.com/tas.