Document ownership: The rules of a broken engagement

Accountants should seek to avoid messy break-ups by setting out the terms of engagement beforehand

Addressing issues at the beginning will help prevent problems down the line should a client move to another accountant.

Parting ways and deciding who keeps the material created during the relationship can be a tricky business, so it’s not surprising that document ownership raises a lot of queries and concerns when a client moves from one accountant to another.

To avoid conflict, misunderstanding and damage to your reputation, it is important to have a shared understanding of the engagement with your client. This understanding needs to be reflected in the terms of the engagement that are negotiated and agreed between you and your client, ensuring everything is clear and explicit from day one.

The relevant professional and ethical standards that deal with the pertinent issues are APES 110 Code of Ethics for Professional Accountants (the Code) and APES 305 Terms of Engagement

The Code provides the fundamental principles and deals with client and engagement acceptance and changes in professional appointment, while APES 305 sets the standards for members in public practice in the provision of quality and ethical professional services to clients.

Related: Get client documentation right

The Code requires members to comply with the fundamental principles of integrity, objectivity, professional competence and due care, confidentiality and professional behaviour. The principles of integrity and professional behaviour are most relevant when dealing with document ownership. Integrity requires members to be straightforward and honest. 

In relation to document ownership, integrity necessitates truthful and straightforward communication with clients about the engagement and honest and straightforward behaviour when the relationship is ending or has ended.

The principle of professional behaviour requires members to avoid any action or omission that the member knows or should know may discredit the profession. Professional behaviour creates an obligation to act in ways that do not damage the reputation of the member and therefore the profession. To act with integrity and professionalism you must ensure that you and your clients have a shared understanding not only about the scope of the engagement and the anticipated deliverables but also who owns the documents that would be used or would come into existence as a result of the engagement.

Setting out the terms of the engagement is not only best practice but also a requirement of APES 305, which obliges members to document and communicate them to clients in an engagement document. While some members may find the requirements burdensome, having a comprehensive agreement prevents conflict, saves time and safeguards the reputation of the accountant and the profession.

This is important, as in many cases there are different perceptions about the engagement that could create disputes.

The engagement document should, among other matters, include the fee and billing arrangements and clarify document ownership. Paragraph 4.9 of APES 305 states that the engagement document “should make clear who owns any documents produced as a result of the engagement or provided by the client for such a purpose, including electronic data”.

A large number of complaints and queries received by CPA Australia’s Professional Conduct Unit relate to document ownership. Setting out an agreed position between you and the client regarding the ownership of books, records, other documents and the electronic data on which you will work, or that are created in the performance of the work, would avoid future disagreement, especially in the case of a change in accountant.

When the engagement document does not address the issue of document ownership, there is little guidance from case law or regulation. In such instances, matters related to capacity and purpose would normally be considered to determine ownership issues.

In relation to capacity, when you are offering professional services you may act as a principal or as the agent of your client. You are the principal when you are acting in your own capacity, for example, when you undertake an audit or provide consultancy or tax advice to clients. In these circumstances the client receives the audit report, consultancy report or advice, but any documents you prepared to carry out your duties are likely to belong to you. 

On the other hand, if you act as the agent of your client any documents you prepare would belong to your client. For example, if you are engaged to assist the client with fulfilling their taxation obligations, you are acting as their agent and the tax return, any computations, accounts or schedules you prepare would belong to them.

Attention should be given to documents needed to fulfil statutory obligations, such as those created by section 286 of the Corporations Act 2001 to keep financial records. In such circumstances any documents defined as financial records, including working papers, would belong to the client.

The purpose of the engagement plays a key role in determining whether you are acting as a principal. This purpose would be expressed in the instructions from your client and reflected in the engagement letter.

Many engagements may not be simple and straightforward, reinforcing the need to have an upfront agreement about who owns what, and to ensure compliance with ethical principles and awareness of legal requirements.

This article is from the 2012 issue of INPRACTICE.

Read next: What accountants need to know about client engagement documentation

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