Accounting and Tax Client Acceptance - Key Considerations for New and Ongoing Engagements
Introduction
Client acceptance and retention decisions play a central role in shaping a sustainable accounting and tax practice. Each engagement, whether a compilation, an independent review, or a tax advisory demands careful evaluation to ensure alignment with the firm’s standards, capacity, and skill set. This article outlines essential considerations before accepting a new client and the criteria for ongoing evaluation of current clients, with a particular focus on the complexities of evolving client needs, increasing workloads, and rapid technological advancements.
Part 1: Client acceptance - what to consider before taking on a new client
1. Assessing the client’s business nature and risks
Industry & reputation: Research the client’s industry, considering any reputational risks and specific complexities that may demand specialised skills. Avoid clients with a history of unethical practices or those in high-risk sectors prone to compliance challenges.
Business model & complexity: Evaluate the client’s business model, especially if it involves intricate accounting requirements, such as rapid growth, mergers, or operations in regulated sectors. Consider whether your firm has the expertise to manage these complexities effectively.
2. Understanding the client’s financial position and history
Financial statements & historical performance: Review prior financial statements for accuracy and reliability, particularly if prepared by reputable firms. Consistency in reporting can indicate lower engagement risks.
Existing liabilities and legal issues: Identify any unresolved tax issues, litigation, or contingent liabilities that may pose future risks for the firm.
3. Assessing the engagement type, scope, and capacity needs
Compilation engagements: For compilation services, confirm that your firm can fulfil the basic requirements of arranging financial data without assurance. Clients with rapidly expanding operations may later need assurance services, which could be beyond a compilation engagement's scope.
Independent review engagements: These engagements require a level of analytical and inquiry-based review, and increased complexity in the client’s business may necessitate specialised skills or higher assurance procedures, which may go beyond a typical review.
Tax Practitioner engagements: Tax compliance engagements demand high levels of accuracy and expertise, especially for clients with intricate tax profiles or significant compliance history. Evaluate whether you possess the resources to stay current with regulatory updates and handle increasing complexity in tax matters.
4. Evaluating resource and technological capacity
Capacity to manage growth: Assess your firm’s ability to handle potential growth in the client’s volume of transactions, particularly if the client is scaling up. Increased transaction volumes may require additional personnel, more frequent reviews, and heightened scrutiny.
Technology and systems requirements: Many clients are adopting advanced technology in their operations, from automated bookkeeping to cloud-based financial reporting. Ensure that your firm has the technology to integrate with the client’s systems, especially if the client expects data compatibility or real-time reporting. If necessary, be prepared to invest in software updates or specialized training to bridge gaps in capability.
5. Verifying regulatory compliance and ethical alignment
Anti-Money Laundering (AML) and Know Your Client (KYC) Checks: Complete thorough AML and KYC checks to prevent reputational or regulatory risks, particularly if the client operates in high-risk industries like finance or real estate.
Professional standards & ethical compliance: Confirm that the client’s operations align with your firm’s ethical standards and professional obligations. A client with consistent ethical misalignments may not be suitable for a long-term relationship.
Part 2: Ongoing client evaluation – criteria for continuation
1. Monitoring changes in the client’s business structure and complexity
Increased complexity or required skills: As clients grow or diversify, their business structures and accounting needs may become more complex, requiring skills your firm may not possess. For example, a client expanding internationally may require expertise in cross-border tax planning, a skill that may be outside your firm’s current capacity.
Technological advancements: Clients who implement advanced technology, such as blockchain for transactions or AI-driven accounting systems, may require integrations that your firm’s systems cannot support. Evaluate if your team has the capability to adapt, or if the engagement would require significant technology investments and training.
2. Evaluating engagement scope and capacity limits
Volume of Work Increase: As the client grows, the volume of work may increase significantly, creating a strain on resources. Ensure that your firm has the personnel and technology to accommodate increased transaction volumes or reporting requirements without compromising service quality.
Review of Engagement Type: If a client initially engaged you for a compilation but now needs an independent review or even an audit-level assurance due to growth, consider whether your firm can support this shift or if the client would be better served by a firm with specialised audit expertise.
3. Performance and conduct in current engagements
Compilation engagements: Ensure clients provide accurate, complete data timeously. Clients who fail to do so repeatedly or whose systems create delays may present challenges that your firm cannot support effectively, thus leading to hefty penalties and interest.
Independent review engagements: Assess the client’s responsiveness to recommendations. If a client consistently disregards your guidance, it may lead to undue reputational risk, and it may be time to reconsider the engagement.
Tax Practitioner engagements: Clients that engage in aggressive tax avoidance tactics or disregard compliance may expose the firm to reputational and regulatory risks. Monitor their compliance with tax obligations closely and assess whether this engagement aligns with your firm’s risk tolerance.
4. Evaluating technological readiness and skills alignment
Skills gap due to technological changes: As technology reshapes financial reporting, a client’s increased use of automation and data analysis tools may reveal skills gaps in your firm. For instance, if the client expects real-time data integration or AI-enhanced analytics, confirm that your firm’s resources can meet these demands or consider investing in training and new technologies.
Ongoing professional development: Regularly assess whether your team’s skills align with client needs. Rapidly evolving technologies like blockchain or cloud-based accounting may require specialized knowledge. If these demands exceed your resources, you may need to terminate the engagement to protect your firm's capacity and quality of service.
5. Review billing and payment patterns
Payment consistency: Clients who frequently delay payments or dispute invoices may indicate deeper financial issues or lack of respect for the firm’s services. Such issues can strain resources and reduce profitability, making disengagement a viable option.
Value alignment on fees and services: Clients who consistently challenge fees or fail to recognise the value of your services may not be ideal for continued engagement. Seek clients who align with the value of high-quality, compliant financial services.
Final thoughts: When to walk away
Disengaging from a client, whether due to rapid business evolution, a technology gap, or misalignment on values, can be challenging but often necessary. Prioritising your firm's integrity, reputation, and sustainable growth should guide the decision to accept, continue, or disengage from any client relationship.
By establishing clear guidelines for client acceptance and evaluating each engagement on its evolving needs and capacity demands, your firm can build a resilient client base that enhances trust, quality, and long-term growth.