Client Assessment Checklist

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.

Three main considerations in the client acceptance process are:

  1. Is the engagement a good fit for the firm's expertise?

  2. 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.

    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.

  3. Is the client the kind of client the firm would like to have?

  4. 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.

    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. Are the client’s expectations of CPAs reasonable? Does the client appropriately value CPAs' services and advice? Background investigations are recommended for all significant engagements. When you have the information you need, explore ways to cultivate the kind of business you want.

    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.

  5. Is the client financially viable?

  6. 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


Conduct Background Check

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 are:
  • Why was our firm selected for this engagement?
  • What was the source of the referral?
  • What business is the client in?
    • Is the engagement within our firm’s areas of expertise? Is it risky?
    • Are the rewards of the engagement worth the risk?
  • Will the engagement cause our firm any conflicts of interest (actual or potential)?
  • 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? (e.g., bankruptcies, business failures)
  • What is the client’s level of financial sophistication? (especially the accounting staff’s)
  • Is there a high staff turnover?
  • Is a key partner or employee leaving?
  • Is the client of a litigious nature, judging from our conversations with prior accountants and/or attorneys?
  • Is the financial knowledge of the client acute?

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. 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.

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.

Other Considerations

  • Conduct a credit check.
  • Speak with the client about their relationship with the prior CPA.
  • Speak with the prior CPA. Make a regular practice of interviewing the predecessor accountant, who can be an excellent source of information that many CPAs fail to utilize. Questions that prior accountants might answer include:
    • Why did the client leave?
    • Did the client pay bills on time? Meet deadlines? Keep good records?
  • Determine why the client is changing accounting firms.
  • Contact the client’s banker (for larger clients).
  • Verify all client information (name, address, email address, etc.).
  • Speak with the client about possible changes in the client’s life (e.g., divorce, bankruptcy, any litigation).
  • Discuss with the client the condition and organization of financial records.
  • Make sure the client has a good understanding of your firm’s fee structure. Communicate your billing and collection policies in your engagement letter, including stop-work and/or disengagement provisions that can be enforced if the client doesn’t pay you in accordance with the engagement letter.


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