Ending a client relationship isn’t always easy or expected. But when the time comes, clear and accurate communication is critical. A well-drafted termination or disengagement letter can be a powerful tool to help accountants manage risk and protect their firm from future professional liability claims.
Key Takeaways
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Memorialize the end of the client relationship in writing, whether it’s the first communication about termination or a follow-up after verbally informing or being informed by the client.
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Know what information to include in—and omit from—the letter, to help ensure clarity of understanding. See Example Accountant Termination Letter below
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Understand common questions and recommended practices around termination to help you navigate the disengagement process and avoid future problems with former clients. See FAQs below
Why is a written letter important?
A client termination letter, also called a withdrawal or disengagement letter, is a formal notice ending the professional relationship between your firm and a client. It is vital to confirm this action in writing, even if you’ve already discussed it with the client. This helps to:
- Avoid any ambiguity about the status of the relationship.
- Give clients enough time to find a new service provider.
- Inform clients of any impending deadlines, which helps reduce the potential for later claims.
What to include in the disengagement letter
When drafting the letter, here are important components—and considerations—to keep in mind:
- Purpose:
- In the first paragraph, clearly state that the client relationship is being terminated and identify the effective date of the termination.
- A separate termination letter should be sent to each client being terminated. Multiple clients may be terminated in one letter as long as the letter recipient is legally authorized to represent all parties included in the letter.
- Items for client follow-up:
- Lay out the client’s responsibilities going forward — including issues they need to timely address with a successor CPA. Items for client follow-up may include:
- Upcoming deadlines (statutory, regulatory, or operational) with which the client should comply.
- Internal control weaknesses that the client should address.
- Indicators of potential fraud or violations of laws and regulations that the client should investigate.
- Explain to the client what could happen if they don’t follow up on the items noted. Inform the client that they will be responsible for any consequences that result from their inaction. This can help your firm deflect blame from the client for missed deadlines or other negative consequences.
- If you have power of attorney to act on behalf of the client before the IRS, state your intention to withdraw such authority to help limit your professional responsibility to the client. For information on how to withdraw a power of attorney, see instructions to IRS Form 2848, Power of Attorney and Declaration of Representative.
- Outstanding fees:
- Include the amount of fees due, even if collection is unlikely, or state that no balance is due. Why? If you don’t bill for your time or follow up on outstanding fees, clients could later assert that you knew you didn’t provide proper service.
- Consider including a final billing statement as an enclosure with the termination letter, to avoid confusion.
- Client records and data retention:
- Clearly explain the status of any original client records supplied to you in connection with prior engagements and reference your firm’s record retention policy with regards to engagement workpapers and other records.
- If questions about or requests for engagement records later arise, review §1.400.200, Records Requests, of the AICPA Code of Professional Conduct and applicable state board of accountancy rules and regulations. You can also consult with your professional liability carrier or the AICPA or a state CPA society through available professional ethics hotlines.
- Other recommendations:
- Consider designating as the sole point of contact, perhaps an owner or firm administrator, to handle any future communications with the former client. This helps minimize the risk of miscommunication and helps control the consistency of responses to questions.
- Send the letter via a traceable method which provides proof of delivery and receipt.
Client Termination Letter Example:
[Date]
[Name of Authorized Client Representative Name]
[Client Name]
[Client Address]
Dear [Client Name or Authorized Client Representative Name]:
As of [Date], [CPA Firm Name] (“firm,” “we,” “us,” or “our”) is terminating our professional relationship with [Client Name(s)] (collectively, “you” or “your”) and will no longer render services to you.
Our services to you were comprised of [Name of service(s) provided. If multiple services were delivered or if multiple clients are included in the termination letter, separately list each client and each service that was delivered to that client. Use of bullets or a table is recommended for clarity].
Items for [Client Name] follow-up
You should select a successor CPA firm and consult with them as soon as possible regarding the following items:
[List items that need to be addressed, any applicable due dates and the client’s consequences of not addressing the item(s). For example:
- Applications for an extension of time to file the 20XX U.S. federal and [State] income tax returns for [Client Name] have been filed with the taxing authorities. These extensions expire on [Date]. In the event any portion of your 20XX income taxes remains unpaid, underpayment penalties and interest continue to accrue on these amounts. Further, in the event your 20XX tax returns are not filed by the due dates, additional penalties and interest may be assessed. You are responsible for all penalties, interest, or other expenses you may incur as a result of your failure to pay tax due or comply with filing deadlines.
- We observed that an individual responsible for processing accounts payable also reconciles the operating account and posts journal entries to the general ledger. This lack of segregation of duties could allow a theft or fraud to occur and not be prevented or detected by you. It is recommended that you evaluate your internal controls and assess whether a lack of segregation of duties or other issue exists.
- It is suggested that you review your repair and maintenance account to ensure all repair and maintenance expenses deducted on current and prior year tax returns have a valid business purpose. If previously deducted amounts lacked a valid business purpose, consider amending previously filed tax returns. The IRS may disagree with your position and assess additional tax, penalties and interest for which you will be responsible.]
We are withdrawing all power of attorneys we have on file with the Internal Revenue Service and [State] Department of Revenue. We will no longer represent you before any taxing authorities. We recommend having your successor CPA obtain a power of attorney so that they may represent you before the IRS and [State]. [Optional – If your firm has an outstanding power of attorney for the client].
Outstanding fees
$[XXX] remains due and payable to our firm.
As provided in the attached engagement letter, interest accrues on unpaid fees at [X]% per month. [Update as necessary to mirror the firm’s billing practices as outlined in the client engagement letter]
Client records and data retention
We previously returned to you all original records you provided to us in connection with our previous engagements. OR We have enclosed all original records provided to us by you. These include the following:
[Describe/list original client records being returned to the client] [Optional – if CPA firm retained client originals].
Our working paper files, including emails and correspondence, are the property of our firm and will be maintained by us in accordance with our firm’s record retention policy.
Your access to [Portal Name] will expire on [Date]. You may access copies of records in the portal up to this date. [Optional – If the client has access to your firm’s electronic systems or portals]
We will cooperate with any CPA successor firm that you designate to us in writing and will consider any requests for access to or copies of documents in our working paper files in accordance with the AICPA Code of Professional Conduct and [State] State Board of Accountancy rules and regulations. We may require payment in full of all outstanding fees owed to our firm before providing access or copies. You will be charged for our time and expense to comply with any requests for access or copies, which will be due and payable on a COD basis.
Please direct all questions to [CPA Firm contact name] at [phone number] or [email].
Very truly yours,
[CPA Firm]
Frequently asked questions
Below are answers to common questions around client termination letters to help you navigate the termination process, follow recommended practices, and manage risk for your firm.
Should I include the reason for termination in the letter?
It is not recommended to include the reason for termination. The letter should simply and directly inform the client that you will no longer provide services to them. Explaining why the firm is ending services may only upset the client further—or give them a reason to “correct” their negative behavior in order to continue receiving services.
What happens if I end a client relationship close to a tax or reporting deadline?
Terminating a client right before a deadline may cause the client to miss that deadline. The client may blame you for any resulting consequences. Consult with your attorney and professional liability carrier before proceeding. Ending the relationship may still be an option but care should be taken.
Can I sue a former client for outstanding fees?
Aggressive collection efforts, including suing a client for fees or sending them to collection, often results in a counterclaim for malpractice which is often costlier than what you may recoup through collections. Read Think Twice Before Suing for Unpaid Fees first.
Can a termination letter be sent by email?
Unless there is a looming deadline or other time-sensitive situation, sending a hard copy of the letter by a traceable method that evidences delivery and receipt is the recommended practice. Traceable delivery methods include, but are not limited to:
- Overnight and second-day delivery with return receipt requested
- USPS certified mail with return receipt requested
- Courier delivery services
If you email the letter, use a platform that provides notification that the email was received and read. Also, since the client can choose not to provide a read receipt, consider sending a hard copy as a follow-up.
What if the client requests additional services after the termination?
After you terminate a client relationship, do not feel compelled to complete certain services for the client or to help them “wrap up” outstanding tax and accounting matters. The bottom line: Termination means it’s the end.
Do I really need a letter if the client initiates the termination?
Even if the client disengages from the CPA firm, it is still recommended that the CPA acknowledge this in writing. Doing so helps memorialize the last day of the CPA’s services and reminds the client of items for their follow-up.
What if I terminated services in the middle of an engagement and the client requests a copy of work completed through the date of termination?
Providing a partially-completed work product to a terminated client — or their successor CPA firm — is not recommended. This helps prevent the client from placing reliance on something they shouldn’t. There may be exceptions to this advice depending on the service, and consultation with an attorney or your professional liability carrier is recommended.
Deciding if it’s time to end a client relationship?
Terminating risky clients may be hard, but taking proactive steps can help protect your firm’s reputation and bottom line.
View top reasons for termination and get tips for managing the transition, with our Client Termination Checklist.
Explore solutions for professional liability protection tailored to CPA firms.