Client Acceptance and Retention

By CPABC
Last Revision: 8/31/2016

The purpose of a client acceptance and retention policy is to assist the firm in assessing the risks associated with providing services to each client. The factors to consider are determined solely by the firm as each has a different level of risk tolerance. In general, firms would consider the following before accepting a new client:

  • Integrity and business reputation of management, directors, and those who control or exert significant influence;
  • Attitude of management, directors, and other involved individuals toward matters such as internal control and accounting standards;
  • Nature of the operations, including the company’s business practices;
  • Relevant industry knowledge and experience (including regulatory and reporting requirements) and staffing resources necessary to complete the engagement; and
  • Actual or perceived conflicts of interest and independence issues.

Client Acceptance Procedures

The question some practitioners ask is how does one go about finding out about the reputation and attitude of management and directors. There is no easy answer but the first thing is to talk to the people involved. It’s important to know up front who and what you are dealing with. Practitioners should not hesitate to ask the tough questions about the history of the company, the people running the company, and their plans for the company. If they are reluctant or evasive, it could be a warning sign that they may also not be forthcoming about the financial information for the company later. In addition, finding out who are the client’s other advisors may give practitioners a clue as to the integrity of the client.

Many practitioners conduct internet searches of the names of the client, management, and director as a matter of course.  It’s good to know why potential clients are making the news.  For a public company client, some firms will obtain the personal information forms that each director and officer must file with the relevant securities commission, as well as check whether those directors and officers, and others involved with the company, have been sanctioned by the various securities commissions. Others even go so far as to conduct criminal record searches. The reasoning being that if you wouldn’t hire an employee without checking references, why would you associate your firm with people whose reputation is less than sterling. We all know that it takes a lifetime to build a stellar reputation but only one mistake can cause significant harm. It’s a worthwhile investment in time and effort to know your potential clients better before they actually become your clients.

Background Research

CPABC encourages members to perform background searches on potential clients as part of your client acceptance and retention policy. If you are not familiar with this process, we suggest you visit the British Columbia Securities Commission’s website, where there is a page that discusses how to conduct background research. Some of the tools it suggests using include:

Conducting a background search is not just for public companies, so take a look at the tools available to help you find out more about potential clients before you become involved.

As you grow your practice and interview potential new clients, be sure to find out how they heard about your firm. Are they just shopping for lower fees, saw your name in an advertisement or the yellow pages, or were they referred to you by a friend or client? If it is a referral, contact the reference to check out the background of your potential new client, the nature of their business, and their reputation for business ethics. If not, perhaps a call to the local Better Business Bureau may give an indication as to the client’s business practices.

Requirement to Communicate with Predecessor

When considering a new client, you must also be aware of the Code of Professional Conduct requirements related to communicating with the predecessor accountant which is outlined in Rule 302.

Client Retention

Practitioners must keep in mind the second part of their client acceptance and retention policy and review their clientele on a regular basis. Although your firm may not have changed significantly, your clients may have.  Has there been a change in senior management? Is there a new significant shareholder? Has the client entered into new partnerships or joint ventures? Has the client made a major shift in business direction or its market? Whether a public or private enterprise, drastic and unfavourable changes in the company or its business may lead you to the conclusion that continued association is not appropriate for your firm.

The term due diligence is often used in connection with investment deals or financing transactions. However, it can apply equally well to any professional relationship where the parties want to take some reasonable steps to ensure they do not suffer any harm. In the current litigious environment with increased professional liability, it just makes sense for practitioners to take the time to learn as much as possible about potential clients and even turn business away if necessary. If an existing client changes so much that it no longer fits your firm’s risk profile, it’s not out of the question to resign provided that this is handled properly.

On the other hand, your firm may have changed recently in that you have merged with another firm, purchased a practice, or purchased a large block of accounts. How do the client acceptance and retention policy of the two firms compare? Are the other party’s standards as high as yours? Are you certain you want to keep all of the clients? If this wasn’t part of your negotiation, it’s not too late to start talking about it now. Make sure you’re not taking on someone else’s problems!