How to handle client records request

By Laura Hay, CPA, CAE

CPAs are the source of critical client business information, and situations often arise that require CPAs to determine others’ accessibility to that information within the profession’s rules.

The departure of an employee, a client separation, or a business restructuring are frequent examples that result in client records requests, and there are many considerations in determining what a client record is, who has the rights to it and in what format it needs to be provided.

Rules have evolved in response to increased automation, new forms of business, cloud services and other environmental factors in business. While your professional liability insurance carrier and legal counsel will be the ultimate resource for navigating the rules and regulations in this area, this article provides some of the core rules of the profession that apply to client records requests. It is not intended to be a substitute for legal advice.

The basics

The AICPA revised its “Records Requests” Interpretation (ET sec. 1.400.200) under the “Acts Discreditable” Rule (ET sec. 1.400.001) effective July 31, 2021. Records defined under this rule include:

Client-provided records include accounting or other records, whether electronic or hard copy, that were provided by the client to the CPA.

These records should be made available to the person or entity that provided the records, or to the individual designated or held out as the individual’s or entity’s representative, as soon as practicable, but absent extenuating circumstances, no later than 45 days after the request is made.

Member-prepared records include accounting or other records that the CPA was not specifically engaged to prepare and that are not in the client’s books and records, which would result in the client’s financial information being incomplete. Examples include books of original entry prepared by the CPA; adjusting, closing, combining or consolidating journal entries (including computations supporting such entries); and subsidiary ledgers or schedules, including depreciation schedules.

Member’s work product includes items the CPA was specifically engaged to perform, such as tax returns or financial reports.

Member-prepared records and member’s work product should be made available to the person or entity for which the engaging entity has engaged the CPA to provide professional services, or to that individual or entity’s designated representative, within 45 days of a request. These records may be withheld if fees are due to the CPA for the specific work product. See the Ohio Accountancy Board rule reference in the following section for additional requirements for withholding member-prepared records or work product in Ohio.

The CPA may charge a reasonable fee to retrieve, copy and ship such records. Work products may be withheld if they are incomplete, if necessary to comply with professional standards (for example, when there is an audit issue), or if threat of or outstanding litigation exists concerning the engagement or the CPA’s work.

The CPA’s working papers are items prepared solely for purposes of the engagement, and include audit programs, analytical review schedules, statistical sampling results and analyses, testing or research conducted by the CPA. The CPA is under no obligation to make such information available to the client. Once a CPA has complied with the above requirements, they are under no obligation to make additional copies of client records available in response to a request, unless the client’s records are lost in a natural disaster or an act of war. The CPA is under no obligation to make records available for periods exceeding applicable laws, professional standards, or contractual requirements for client record retention.

“Make available” means to provide the records in any format that is usable and accessible, whether electronic or otherwise, regardless of the format in which they were received.

Additional Accountancy Board of Ohio requirements

Ohio Administrative Rule 4701-11-06, “Retention of Client Records,” adopted by the Accountancy Board of Ohio, establishes additional requirements for withholding CPA-prepared client records or work product for fees owed. Section (H) of the Rule provides that there must be a documented understanding prepared prior to the engagement and communicated to the client stating the fee arrangement specific to the service(s) being provided. Absent such a documented understanding, the CPA may not withhold CPA-prepared client records for fees owed.

Electronic records

If client records exist in electronic format, must the CPA provide electronic copies in response to a client request?

Section (F) of the ABO Rule provides that:

“If the public accounting firm or Ohio permit holder has converted client information onto computer files for use with the firm's or permit holder's software and the firm or permit holder has not been paid for professional services rendered, then the firm or permit holder is under no obligation to provide the client with electronic files or a copy of any software. If the client has paid the firm or permit holder for professional services rendered, then the firm or permit holder must provide a copy of all relevant electronic data files to the client.”

What is a “relevant electronic data file?” The ABO is currently interpreting this section of the Rule consistent with AICPA nonauthoritative guidance included in their “Frequently

Asked Questions: General Ethics” as of March 18, 2022. Questions 1, 4 and 5 under “Electronic records” in the FAQs discuss when an electronic data file is considered the CPA’s working papers, a member-prepared record, or a member work product.

If the electronic data was entered from redundant information retained by the client, it is part of the CPA’s working papers. For example, if the CPA enters information from the client’s trial balance into software to compile the financial statements or tax return, they are not required to provide a copy of the data file unless they were engaged to do so. The work product is a financial statement or tax return.

If the CPA maintains the only electronic copy of information the client needs to have complete financial records (for example, the CPA prepares the client’s general ledger), it is a member-prepared record. If the CPA has been engaged to provide the electronic files (the CPA agreed to do so in the engagement letter), it would be a member work product. These data files should be made available if the client has paid the CPA for services rendered.

Sale, transfer, discontinuation or acquisition of a CPA practice

Effective June 30, 2017, the AICPA Interpretation ET sec.

1.400.205, “Transfer of Files and Return of Client Records in Sale, Transfer, Discontinuance or Acquisition of a Practice,” addresses the CPA’s professional responsibilities for client records when the CPA firm transitions ownership.

A CPA selling or transferring their practice is required to notify each client subject to the sale or transfer requesting the client’s consent to transfer its files to the successor firm. The CPA may notify the client that its consent may be

presumed if it does not respond to the CPA’s request within a period of not less than 90 days. The files should not be transferred until either the client’s consent is obtained, or the number of days has lapsed, whichever is shorter.

Arrangements for files not subject to the sale or transfer should be made in accordance with the Records Request Interpretation (ET sec. 1.400.200).

A CPA discontinuing a practice should notify all current clients in writing and return records in accordance with the Records Request Interpretation (ET sec. 1.400.200).

In either case, if the CPA is unable to contact the client, files not transferred should be retained in a confidential manner consistent with the firm’s record retention policy or as required by applicable legal or regulatory requirements, whichever is longer.

A CPA acquiring all or part of a practice should be satisfied that the requirements for 1.400.205 have been met.

Practicing before the IRS

Treasury Circular 230 provides additional guidance for the return of any client records necessary for the client to comply with its federal tax obligations, even if there is a dispute over fees.

Receipt of a subpoena

If a CPA receives a subpoena for client records, contact legal counsel and the professional liability insurance carrier.

Laura Hay, CPA, CAE, is the executive vice president of The Ohio Society of CPAs and the staff liaison to the Accounting, Auditing, Professional Ethics Committee and Peer Review Committee. She can be reached at Lhay@ohiocpa.com or 614.321.2231