CPA Practice Continuation Agreement

Reproduced with permission from CAMICO. All rights are reserved.

What will happen to your firm if you experience a catastrophe, illness, or death? An unexpected tragedy can result in (1) clients' concern about their professional needs, (2) loss of clients and staff, and (3) billing delays. Small firms can take a proactive approach to mitigating the effects of a tragedy by having a Practice Continuation Agreement signed with another compatible practitioner.

CAMICO Mutual Insurance Company has provided this article highlighting the process of developing a Practice Continuation Agreement.

For a sample agreement, e-mail Dan Cronin.

Practice Continuation for Small Firms

By Suzanne M. Holl, CPA

No one likes to think about it, but we are all subject to illnesses and injuries, some of which can disable us for several months, even years. What would happen if you were unable to work for an extended period? Do you have any kind of contingency plan in place?

CPAs who have not yet taken the time to develop a plan may be: 1) inviting future lawsuits against themselves or their estates; and 2) leaving their spouses, families, and heirs with the daunting task of trying to figure out what to do in the event of a disability or death.

The first step is to get a plan in place. This will go a long way toward facilitating the continuation of the practice, making sure clients are taken care of, and preserving the value of the practice.

CPAs interested in detailed guidance for developing practice continuation plans can refer to the Management of an Accounting Practice (MAP) Handbook (AICPA), which includes an article on “Practice Continuation Agreements,” by John A. Eads, CPA, or the Guide to Managing an Accounting Practice (PPC). What follows are some basic tips from those and other sources on how to get a plan started:

1. Create a checklist of important resources and phone numbers, such as your professional liability insurance carrier, state board of accountancy, and the state and local CPA societies. CPA societies often have member crisis hotlines and will put their members in touch with MAP committee members in their local areas to explore ways of keeping a practice going in an emergency. Other important numbers may include your office building manager, computer technical help, telephone service, and other utilities.

2.  Assemble a set of practice and operating documents. These documents can be divided into sections, such as:

a. A profile of the proprietorship, including types of services offered, names of key employees, location of accounting records, bank account information, and location of contracts and lease agreements.

b. A client list, including key contacts, services provided and important deadlines. (This will need to be much more detailed if you are interested in negotiating a buy/sell agreement as part of a continuation or succession plan.)

c. Procedures used to monitor work in progress. This will enable others to determine the status of uncompleted work.

d. A guide to using the firm’s computers.

e. The location of workpapers.

f. A description of the filing system.

g. Office procedures for handling the receipt and return of client information.

h. Billing schedules and collection policies.

i. Procedures for identifying and paying accounts payable.

j. The location of personnel files.

3. Decide on a continuation arrangement/agreement. There are three basic types:

 a. A one-to-one agreement, which usually takes the form of a buy/sell agreement written to cover the CPA’s disability or death.

 b. A group agreement, in which several CPAs may act as successors/partners to each other’s firms. CPA firm alliances or associations generally serve this purpose, among other purposes.

 c. A state society plan, in which local societies or MPA committees assist the member, spouse, or heirs in finding a successor/partner.

4. Identify, approach and partner with a suitable firm(s). Network among sources of referrals. The best organization for such networking is your local CPA society. Other sources include bankers, attorneys, and community groups.

Alliances among CPA firms are booming in some regions. Some are formal associations, others casual, but one of the benefits is that they provide for practice continuation in the event of disability or death.

5. Implement the plan. Contact your attorney to draft any agreements required by the plan. Discuss the plan with your spouse, attorney, and successor/partner. Communicate in writing the instructions for all parties, and set up dates for annual reviews of the plan.

Suzanne M. Holl, CPA, is director of loss prevention services with CAMICO Mutual Insurance Company (http://www.camico.com/). With more than 18 years of experience in accounting, Holl draws on her Big Four public accounting and private industry background to provide CAMICO’s member-owners with information on a wide variety of loss prevention and accounting issues.

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