Cloud accounting software has revolutionised the way client records are managed in public practice. Cloud accounting systems store financial data on remote servers, allowing access from anywhere with an internet connection. Disputes may arise during handovers from outgoing to incoming accountants. Who is the software account owner and who has rights to the electronic data - raw and processed?

In response to an increase in the volume of member queries on this topic, Guidance Note N1 – Client Records (previously Guidance Note N1 -Books and Records); has been revised to address current issues in managing client records within cloud accounting systems. The updated guidance provides further clarity on key areas such as data management, data rights and software ownership and access.

Cloud Account (Software) Owner vs Data and Access

Where accounting software (whether cloud-based or locally hosted) is used, the contract with the provider of the cloud accounting software must be considered. This will typically be a contract between the Cloud Computing Provider and the relevant Cloud Account Owner.  The Cloud Account Owner is usually the “Subscriber” to the cloud accounting service. 
Even where the accounting firm is the Cloud Account Owner and has full access to the account, data may still belong to the client and any workings within the software may still belong to the accountant in accordance with the general ownership principles in Guidance Note N1.  

Best practice is for the engagement letter to specify the software account owner access and data ownership rights (raw and processed).  This aids clarity and avoids disputes when the engagement ceases.

Access to Cloud Accounting Systems

When an engagement ceases, client records (stored in the cloud or otherwise) must be returned to the client. For cloud-based systems, this typically involves transferring access to the new accountant or the client.  Members should ensure that the engagement letter specifies how access to records will be managed.  

Critical considerations for the Outgoing Accountant: 

• Access to Data: Once access to the account is removed, the outgoing accountant will no longer be able to view or access the file - including historical workings. To protect their professional position in the event of a future dispute or claim, the outgoing accountant should ensure they copy all relevant records prior to losing access. 
• Transaction History Report:  This report should be retained as evidence to show that any account activity occurring after the file transfer, was not initiated by the accountant during their period of engagement.
• Transfer of Access: Providing login credentials, transferring Cloud Account ownership to the new accountant or client, or supplying appropriate client data files, facilitates a smooth transition. Restricting a client’s access to their files – particularly where it disrupts normal business operations (e.g. payroll functions), is likely to be considered a breach of the ethical principal of professional behaviour under APES 110 Code of Ethics for Professional Accountants (including Independence Standards). 

Best Practices for Engagement Letters

To avoid disputes and ensure clarity, legal advice is always recommended. Guidance Note N1 – Client Records, outlines some suggestions for inclusions in engagement letters: 

• Specify who is the ultimate Cloud Account Owner and all parties access rights.
• Details on how clients can access their records, especially if the relationship ends.
• Ownership of different types of data (raw and processed).
• Procedures for data management at the end of the engagement.

Conclusion

The revised Guidance Note N1 – Client Records, underscores the importance of clear terms in the engagement letter and proactive cloud accounting software management practices. By understanding the distinctions between the cloud account owner and the owner of data and access rights, accountants can foster a smooth transition for their clients.  

For further guidance, please see links to additional resources below: 

• N1 – Client Records
• Xero's Partner Code of Conduct
• Professional Standards Support