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Client Assessment and Ongoing Evaluation

Client Assessment and Ongoing Evaluation

By evaluating all potential new clients and re-evaluating all current clients on a regular basis, at least annually, the firm is able to consider any factors or changes that might affect the professional relationship or cause an escalation into a crisis. Now is also good time to screen tax clients for potential problems. There is still time before tax season for a client to replace you in the event you decide to disengage.

Three main considerations in the client acceptance process are:

1) Is the engagement a good fit for the firm’s expertise?

If the firm accepts an engagement for which it is not professionally staffed or qualified, it runs the risk of disappointing the client, or a third party, and exposing itself to litigation and ethics violations. Due care demands that firms:

  1. have the resources to perform the services required by the engagements they accept; and,

  2. are performing the services often enough to become proficient at them.

CAMICO claims experience shows that firms “dabbling” in services outside of their areas of expertise are not practicing them often enough to become competent. Services that represent less than 15% of a firm’s service concentration produce disproportionately high loss ratios.

Proficiency in any type of engagement includes the ability to identify risk stress points in the engagement. CPAs are expected to possess a thorough understanding of the client’s business and industry in order to identify those stress points.

Establish a policy for the types of engagements your firm will avoid because of a lack of technical expertise or resources.

2) Is the client the kind of client the firm would like to have?

A variety of factors need to be considered in answering this question, ranging from the client’s reputation and integrity, to its commitment to appropriate accounting practices and to internal controls. CPAs should obtain permission to check with predecessor firms to obtain as much information as possible about the client. For example: Are the client’s expectations of CPAs reasonable? Does the client appropriately value CPAs’ services and advice? Does the client pay on time? Is the client difficult or uncooperative? Does the client withhold information? Has the client’s business changed recently? If a potential client refuses to allow you to talk freely with their former accountant, treat this as a significant red flag and give thoughtful consideration to bringing this client on. Another alternative is to obtain a background investigation, particularly for all significant engagements.

When you have decided to develop a niche in your practice, explore ways to cultivate the kind of business client you want. Some firms create a list of their top clients with descriptions of why they’re attractive. The descriptions help guide firm management choose the clients they want to entice. If you’re a new firm, you have the opportunity of selecting the clients you want. If you’ve been practicing for some time, there’s nothing to stop you from changing your clientele.

Other important considerations will depend on the type of client or engagement in question. For some engagements, CPAs will need to consider potential or actual conflicts of interest, as well as whether the CPA’s independence and objectivity are impaired in appearance or in fact, especially when considering
services for attest clients.

3) Is the client financially viable?

The answer to this question is critical, especially in avoiding fee collection problems and disputes. Much of the information you need can be obtained by:

  • Interviewing the client and the client’s key personnel, banker, attorney, predecessor accountants and auditors
  • Running a credit check
  • Examining the past three years of financial statements
  • Examining the past three years of tax returns
  • Examining prior CPA’s management letters

Client screening should be done regardless of the nature of the services you are being asked to perform, preferably during the period between the client’s first contact with your office and the preparation and signing of the engagement letter (the “pre-engagement” period). Much of the information you’ll need can be asked at the client interview and verified later through other interviews or other resources. The more information you get, the better you’ll be able to assess the risk of the engagement or the client.

In a CPA partnership or professional corporation, it is a common practice for another partner or a client committee to review the client-screening information and to pass judgment on the acceptability of a new client, which allows the firm’s management to be objective about the acceptance process.

There are high-risk clients and high-risk engagements. Some CPAs rank their clients according to how cooperative, knowledgeable, reasonable, difficult, or time-consuming they are. Engagements can be ranked as well by the complexity of the work. Generally, difficult clients with complex work pose the highest risk to the CPA firm. Again, all significant engagements call for background reports.

More information about CAMICO insurance solutions and risk management programs is available at


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