Client Assessment Checklist

By Suzanne M. Holl, CPA

Any client, whether new or established, can become problematic for a variety of reasons. For example, a problem client may—

  • be unhappy with the results of an engagement, though there was nothing wrong with the services performed;
  • believe that the CPA rendered substandard services (especially if the client is unhappy with the results);
  • manage financial affairs poorly, creating maelstroms for which the CPA is held responsible;
  • be financially irresponsible and more inclined to blame the CPA when finances take a downturn;
  • owe so much money to the CPA that the client believes a malpractice claim will eliminate or reduce the amount owed.

CPA firms should evaluate all potential new clients and re-evaluate all current clients on a regular basis, at least annually. This enables the firm to better monitor clients, consider any changes that might affect the professional relationship and avoid situations that could escalate into crises. Firms can also stipulate in their engagement letters that the engagement is not binding until client acceptance procedures have been completed.

The following questions are designed to help CPAs conduct the due diligence needed to ensure that the client is a good fit for the firm, and that the firm is comfortable with the client.

1) Is the engagement a good match 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 a) are capable of performing the services required by the engagements they accept and b) are performing the services often enough to become proficient at them.

Firms that "dabble" in services outside their areas of expertise are typically not practicing them often enough to become proficient. Indeed, services that represent less than 15 percent 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 what types of engagements the firm will avoid because of a lack of technical expertise.


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 internal controls. CPAs should communicate with predecessor accountants and third parties to obtain as much information as possible about the client.

Are the client's expectations of CPAs reasonable? Does the client appropriately value CPAs' services and advice? Once the firm has the information it needs, it can explore ways to cultivate the kinds of business it wants.

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 and whether their independence and objectivity are impaired in appearance or in fact, especially when considering services for attestation 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 needed 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; and
  • examining the prior CPA’s management letters.

Background checks

Background checks should be considered for all significant engagements. Credit checks and public record checks are critical, but background checks are about more than the financial condition of the client. The questions the CPA firm should ask include the following:
  • Why was the firm selected for this engagement?
  • What was the source of the referral?
  • What business is the client in?
    • Is the engagement within the firm’s areas of expertise? Is it risky?
    • Are the rewards of the engagement worth the risk?
  • Will the engagement create any conflicts of interest (actual or potential) for the firm?
  • Are the business and accounting records adequate and in order, or disorganized?
  • Are the financial statements and tax returns for the past three years consistent?
  • What is the client’s financial track record? Have there been bankruptcies or business failures?
  • What is the client’s level of financial sophistication (especially among its accounting staff)?
  • Is there high staff turnover?
  • Is a key partner or employee leaving?
  • Is the client of a litigious nature, judging from conversations with prior accountants and/or attorneys?
  • Is the financial knowledge of the client acute?

Regardless of the services the CPA is being asked to perform, client screening should be done during the period between the client’s first contact with the CPA and the signing of the engagement letter (the “pre-engagement” period). Much of the information needed can be obtained at the client interview and verified later through other interviews. The more information obtained, the better the assessment of risk.

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.

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 firm, and risk management then becomes all the more essential.



Suzanne M. Holl, CPA, is senior vice president of loss prevention services with CAMICO ( www.camico.com ). With almost 30 years of experience in accounting, she draws on her Big Four public accounting and private industry background to provide CAMICO’s policyholders with information on a wide variety of loss prevention and accounting issues.

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