Withholding signature or service

This helpsheet has been issued by ICAEW’s Technical Advisory Service to help ICAEW members identify a range of legal and practical considerations when deciding whether to withhold signature or service.

Members may also wish to refer to the following related helpsheets:

• Should I continue to act for clients unable to pay my fees?
• Fee information
• Engagement letters and privacy notices

The Ethics Advisory Service receives regular enquiries from members about the consequences of unilaterally withholding service from a client in response to the client’s failure to pay their fees. This helpsheet is based on the most frequent enquiry - withholding a signature on an auditor’s report, although similar considerations apply to other services.

This helpsheet brings together the issues most commonly raised and highlights some of the questions you should ask yourself before deciding to withhold your signature and/or service. The advice and information within this helpsheet is based on Counsel’s Opinion obtained in 1995.

This helpsheet provides a general discussion of the issues and you should not rely on Counsel’s Opinion, as articulated here, for detailed guidance on your specific circumstances. Instead, we recommend you seek an independent legal opinion.

Keeping the client informed

Section 330 of the ICAEW Code of Ethics requires professional accountants to provide certain information about their fees to clients at the earliest opportunity and to provide a fee breakdown on request. In addition, where it becomes apparent that a quote or estimate will be exceeded the firm needs to keep the client informed of this. Further guidance is available in the helpsheet Fee information.

Should a fee dispute arise, it should be dealt with promptly - paragraph R330.11 of the ICAEW Code of Ethics requires professional accounts to take reasonable steps to resolve any fee dispute.

Contractual terms

If the terms of the contract are not clearly defined at the outset, the likelihood of any term being upheld by a court is greatly reduced. A comprehensive letter of engagement is, therefore, highly desirable, if not essential.

When referring to payment arrangements in your engagement letter you should ensure that it clearly states that, either:

• The full fee is payable before signature/submission of the audit report or accounts; or
• Interim invoices must be paid during the engagement (the basis for rendering invoices should be clearly set out).

Further guidance is available in the helpsheet Engagement letters and privacy notices.

In the absence of an engagement letter you should, as soon as practicable, confirm the initial discussion as to services and fees in writing to the client. Further guidance is available in the helpsheet What if you have not issued an engagement letter?

Counsel’s Opinion is that you should not withhold your signature purely to improve your bargaining position in relation to fees. It is open to you to agree methods of payment which should avoid the need for such drastic action (see guidance above).

You may have agreed contractually that you will not sign or submit (as appropriate) work until payment.

In such cases, if you receive notice from the client that they are unable or unwilling to pay after an interim fee note has been rendered, or before the only fee note is to be rendered, and you continue to service the contract, you may be obliged, legally, to sign the auditor’s report. Under such circumstances you may be understood to have waived your entitlement to prior payment. You will, however, still be entitled to sue for your fees.

If, however, you receive notice of the above at a time when no significant work remains to be done, save signature or submission, then you would not waive your contractual entitlement to payment and you could refuse to sign/submit.

Relevant legal considerations

Withholding signature to an audit report will not render your firm liable to prosecution under any Companies Act provision. Any criminal offence arising from a failure by a company to submit accounts on time is that of the company and its director(s).

A firm that withholds its signature, or otherwise withholds services unilaterally, may, however, be liable to be sued in the civil courts.

Fines and penalties

If your client is likely to incur substantial penalties or fines as a consequence of your firm withholding its signature, and the fees outstanding are small, it may be that reliance on the contract could be attacked in court. You should consider such extreme cases on their individual merits.

Counsel’s Opinion is that you should not withhold your signature purely to improve your bargaining position in relation to fees. It is open to you to agree methods of payment which should avoid the need for such drastic action (see guidance above).

You may have agreed contractually that you will not sign or submit (as appropriate) work until payment.

In such cases, if you receive notice from the client that they are unable or unwilling to pay after an interim fee note has been rendered, or before the only fee note is to be rendered, and you continue to service the contract, you may be obliged, legally, to sign the auditor’s report. Under such circumstances you may be understood to have waived your entitlement to prior payment. You will, however, still be entitled to sue for your fees.

If, however, you receive notice of the above at a time when no significant work remains to be done, save signature or submission, then you would not waive your contractual entitlement to payment and you could refuse to sign/submit.

Relevant legal considerations

Withholding signature to an audit report will not render your firm liable to prosecution under any Companies Act provision. Any criminal offence arising from a failure by a company to submit accounts on time is that of the company and its director(s).

A firm that withholds its signature, or otherwise withholds services unilaterally, may, however, be liable to be sued in the civil courts.

Fines and penalties

If your client is likely to incur substantial penalties or fines as a consequence of your firm withholding its signature, and the fees outstanding are small, it may be that reliance on the contract could be attacked in court. You should consider such extreme cases on their individual merits.

ICAEW members, affiliates, ICAEW students and staff in eligible firms with member firm access can discuss their specific situation with the Ethics Advisory Service on +44 (0)1908 248 250 or via webchat.