Can an accountant hold shares in a client company

If you audit or carry out other assurance work for a company, you, your firm and the people closely associated with you generally cannot hold shares in it, and inherited or gifted shares must be sold. If you only prepare accounts or tax returns, owning shares is not banned, but it is a self interest threat you must assess and manage, and a significant or controlling stake may mean you should not act.

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Is it ever acceptable to own shares in a client?

Yes, for many practices it is. ICAEW’s helpsheet on objectivity says independence is only required for audit, review and assurance engagements, so an accountant providing bookkeeping, accounts preparation or routine tax compliance does not have to be independent of the client. What every accountant must preserve is objectivity, and the helpsheet lists investments alongside loans as financial relationships that can threaten it. With investments, it says you should consider whether the resulting control is significant.

So a small holding in a listed company that happens to be a tax client is very different from owning a third of a family company whose accounts you prepare. The analysis starts with the type of engagement, then turns to the size and nature of the interest.

Why is a shareholding a threat to objectivity?

Paragraph 300.6 A1 of the ICAEW Code lists “a professional accountant having a direct financial interest in a client” as the first example of a self interest threat, and “promoting the interests of, or shares in, a client” as an example of an advocacy threat. If you own shares, the value of your investment depends on the figures you help produce. You may be tempted, consciously or not, to favour a treatment that flatters profit, to avoid a provision, or to keep quiet about a problem that would hit the share price.

A shareholding also complicates conflicts. Paragraph 310.4 A1 gives as an example of a conflict of interest advising a client to invest in a business in which the accountant’s spouse has a financial interest. If you advise one client to buy into another client that you or your family own part of, you are in conflict territory as well as facing a self interest threat. See conflicts of interest for accountants.

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What does the FRC Ethical Standard prohibit for audit clients?

Statutory audits under ISAs (UK) are governed by the FRC Ethical Standard 2024, which ICAEW requires members to follow in place of Part 4A of its Code. Section 2 contains two overlapping prohibitions:

Every partner in the firm and persons closely associated with them must not hold any financial interest, other than an immaterial indirect financial interest, in any entity relevant to an engagement of the firm or its affiliates (paragraph 2.3). This applies to all partners, not just those on the audit.
The firm and each covered person, and persons closely associated with them, must not hold any financial interest in an entity relevant to an engagement for which they are a covered person, other than an immaterial indirect interest held through a diversified collective investment scheme (paragraph 2.4).

Paragraph 2.5 explains that these threats are treated as ones that no safeguards can reduce to an acceptable level, which is why holdings are prohibited rather than managed. A covered person is anyone in a position to influence the conduct or outcome of the engagement, which includes the engagement team and those with supervisory or oversight responsibility. A person closely associated includes a spouse or equivalent partner, a dependent child, and a relative who has lived in the same household for at least a year, as well as firms and trusts they control.

There is limited relief. Paragraph 2.8 recognises that some entities require members to hold shares, such as mutual organisations. In that case no more than the minimum number of shares required should be held, materiality should be assessed, and the interest disclosed to those charged with governance. Paragraph 2.6 also allows a closely associated person of a partner who is not a covered person to hold shares acquired through their own employment arrangements, subject to the Ethics Partner’s review. Our page on auditor independence covers the wider standard.

What about review and other assurance clients?

For audits outside ISAs (UK) and for review engagements, ICAEW’s Code applies Part 4A (or the FRC requirements if more convenient). R510.4 says that a direct financial interest or a material indirect financial interest in the audit client must not be held by the firm, an audit team member or their immediate family, any other partner in the office where the engagement partner practises, or any partner or managerial employee who provides non audit services to the client (unless their involvement is minimal). For other assurance engagements, R910.4 prohibits the firm, an assurance team member and their immediate family from holding a direct or material indirect financial interest in the client.

Paragraph 510.3 A1 explains the direct and indirect distinction. An interest held through an intermediary such as a fund or trust is direct if you control the intermediary or can influence its investment decisions, and indirect if you cannot. See independence in non audit assurance work for how these engagements are scoped.

What if you inherit shares, receive them as a gift or hold them as trustee?

Shares can arrive without any decision on your part. The FRC Ethical Standard (paragraph 2.11) says that where a prohibited interest is acquired unintentionally, for example by inheritance, gift or a merger, it must be disposed of immediately, or as soon as possible after the person knows of it and has the right to dispose of it. Until then, paragraph 2.12 calls for safeguards such as temporarily removing the person from the engagement. ICAEW’s Code (R510.9) has a similar rule for audit and review work.

Trustee holdings need their own analysis. Paragraph 2.16 of the Ethical Standard says a trustee interest in an audited entity must not be held where, among other things, the trustee is an identified potential beneficiary, the holding is material to the trust, the trust can exercise significant influence over the entity, or the trustee can significantly influence the trust’s decisions about that holding. Accountants who act as trustees of family trusts that own client shares should check these conditions carefully.

For accounts and tax clients, how do you judge the threat and what safeguards work?

The objectivity helpsheet suggests asking whether you would be comfortable if a reasonable and informed third party knew the facts, and whether your work is held out as coming from an independent firm. Factors that raise the threat include:

a holding large enough to be material to you or to give you influence or control;
work involving significant judgement, such as statutory accounts with major estimates, valuations or contentious tax treatments, rather than straightforward payroll or compliance;
other ties to the same client, such as a directorship or a loan.

The helpsheet gives safeguards that may help: using staff who do not have the relationship, discussing the matter with the board or other affected parties, disclosing the relationship (for example, not presenting unaudited accounts as prepared by your firm where a significant connection exists, or disclosing it), and having the work reviewed internally or externally. If safeguards cannot reduce the threat to an acceptable level, the engagement should be declined or ended. Document your reasoning either way.

How might this work in practice?

Illustration only. Two partners run a small firm that prepares accounts and corporation tax returns for a software start up. The founder offers one partner 5% of the shares in exchange for reduced fees. The company is not audited. The partners note that the work includes judgements about capitalising development costs and research and development relief claims, both of which would affect the value of the shareholding. They decide the other partner will take responsibility for the client, an external reviewer will look at the development cost judgements each year, and the firm will tell the other shareholders about the holding. They also record that if the company later needs an audit, the firm cannot take it on while the partner holds the shares.

What mistakes do accountants make?

Not knowing what family members own. The audit rules reach persons closely associated with you, so firms need a reliable way to collect this information.
Holding shares in a client that later becomes an audit client, for example after growing past the audit exemption limits, without planning for disposal.
Taking shares instead of fees. This can align your interests with the company’s results and also creates a financial relationship similar to a loan.
Combining a shareholding with a board seat. See acting as director or company secretary for a client.
Failing to revisit the assessment as the holding or the work changes.

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Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 19 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.