The sudden death or serious illness of a chartered accountant can affect many people beyond the unfortunate CA. It’s not unusual for Chartered Accountants Australia and New Zealand to be contacted for help by the next of kin of sole practitioners who have recently died. Sometimes we’re called by a CA’s client or by members of their staff wanting guidance. In one case, a CA disappeared and was later found in hospital.

As a CA you have a professional obligation to look after your clients. You don’t want to let them down. You also don’t want to impose another burden on your family and friends at an already raw and stressful time.  

But what would happen if you stepped out the door and didn’t come back? That’s why you should have a succession plan in place in case of accident or ill health.

“If you couldn’t work for an extended period it would create difficulties for your clients, anxiety for your family, and potentially erode your practice’s value or even cause it to disappear.”

Why you need a succession plan

If you couldn’t work for an extended period it would create difficulties for your clients, anxiety for your family, and potentially erode your practice’s value or even cause it to disappear. Nobody wants that.

In Australia, sole practitioners and firms must have a documented succession plan in case of death or incapacity as part of their risk management framework under APES 325 Risk Management for Firms. But it’s also a good idea for all CAs. The plan should be reviewed regularly   to ensure it’s up to date and able to be implemented.

Insurance, of course, also has a role in protecting your business. Key person insurance and business continuity insurance can cover expenses while you’re unable to work. And key person capital cover can provide a lump sum payout to pay down a practice’s debt. But consider it in addition to your succession plan, not as a replacement.

What you need in your succession plan 

1. Nominate your preferred ‘caretaker’ practitioner/s from among your colleagues or another firm. You should agree on what assistance they’ll provide and what remuneration they’ll receive. 
2. Identify the trigger events that mean your ‘caretaker’ practitioner steps in and what events would decide the arrangement. Potential trigger events include: 
   • Temporary incapacity, where you need to take extended time off to recover from an injury or physical or mental illness. 
   • Permanent incapacity, where the lasting effects of an accident or physical or mental illness mean you’re no longer able to exercise professional judgment or competence. 
   • Death. 
3. Make a formal agreement with the ‘caretaker’ practitioner/s that outlines their responsibilities, authorities, services, fees and expenses. Also consider if they’ll have a right to acquire your clients or buy the practice if your short-term absence becomes more serious and you can’t go back to work. It’s a good idea to get legal advice on this document.
4. Get legal assistance to prepare a power of attorney or other arrangements that allow the ‘caretaker’ practitioner to make business decisions. 
5. Don’t forget about storage and access of passwords for the ‘caretaker’. They won’t be able to service your clients if they can’t access your files. However, before working on any files, the ‘caretaker’ needs to let clients know you’re not available and provide a new engagement letter in line with APES 305 – Terms of Engagement. They’ll also need their own professional indemnity insurance and a Certificate of Public Practice if they are a CA and will be the principal of the firm.
6. Outline under what circumstances your practice may be sold. This could be the most sensible action if you can’t work for quite some time, are permanently incapacitated or die. You should also include how the business will be valued, and possible sale and purchase options.
   
   You’ll find more detailed advice on these steps in N7 – Arrangements to Cover the Incapacity or Death of a Sole Practitioner.

What happens if an accountant dies?

If a CA dies, their next of kin, executor or other representative should seek legal guidance as the estate is likely to be the legal proprietor of the practice. They should also notify Chartered Accountants Australia and New Zealand and contact the Australian Securities and Investments Commission (ASIC) if the accountant’s an auditor, and the Tax Practitioners Board (TPB) if the CA was a registered tax practitioner.

The insurer that provided professional indemnity cover should be contacted by the estate or beneficiary to determine the best course of action for the PI policy. It may be continued cover if someone has taken over the affairs of the company or run off cover.  Other   insurance policies – business, workers’ compensation, etc also should be considered and discussed with the Insurance broker. If the CA was a sole practitioner in the process of completing an audit engagement, another practitioner can’t sign off the audit on their behalf. The audit has to be started again and ASIC must be notified.  

And what happens with death and taxes? There may be other employees in the firm who can assist clients with preparing Business Activity Statements (BAS) and other tax issues, but they can’t sign it off in the original practitioner’s name. If the caretaker practitioner is a tax practitioner, they should sign off in their own name, and notify the TPB of any changes to nominees. They should also contact the Australian Taxation Office (ATO) about extensions and re-lodgements for clients.   

You’ll find more detailed advice on professional registration considerations in N7 - Arrangements to Cover  the Incapacity or Death of a Sole Practitioner. 

As an accountant you’re aware that sometimes misfortune befalls good people. But if the worst does happen, having a plan in place means less stress for you, your clients and those who love you.