Abstract: A contentious divorce. Clients who want to file delinquent tax returns. The new client who represented himself as an upstanding businessman but has been indicted--for the third time. After malpractice claims are resolved, CPAs often say, I never should have taken this But there is a way to help prevent this type of regret. By establishing sound client acceptance procedures, CPAs often can identify problem clients before they cause trouble. That helps firms of all sizes better manage potential professional liability risks. A disciplined approach to client acceptance also contributes to a firm's sustainable growth and long-term profitability BASIC STEPS FOR ALL CLIENTS AND ENGAGEMENTS Practitioners should exercise due diligence in accepting all clients and engagements. Basic steps include: * Evaluate prospective client integrity. ** Personally meet with prospective clients (senior management, owners, and/or directors for business clients). ** Ask for and follow up with references, including attorneys, bankers, other business consultants, and major vendors or customers. Verify that relationships were not terminated due to disagreements regarding business operations or outstanding invoices. ** For key executives of business clients (especially those not known by the CPA firm), ask for and follow up with personal references, including previous employers and business associates. ** Consider obtaining a credit history for individual tax and financial planning clients. ** If the prospective client is changing CPA firms, request permission to contact the predecessor firm to investigate issues such as the client's consideration of advice provided, integrity, ethics, reasonableness of expectations, experience and qualifications of the staff, and business policies and procedures including cooperation, timing of the engagement, and whether the client pays bills on time. The previous CPA firm can provide only limited information unless it obtains an Internal Revenue Code Sec. 7216 disclosure statement from the client. Even so, the prospective client's reaction to this request (and the response of the predecessor firm) may be indicative of the client's relationship with professional service providers. ** Determine how the prospective client found the CPA firm. A referral from a long-term client may require a different degree of professional skepticism than someone who found the firm over the internet. * Perform engagements with professional competence. Before agreeing to propose on or accept an engagement, consider whether the requested service can be competently provided in accordance with applicable professional standards. This includes considering whether: ** The service is within the experience and expertise of the CPA firm; ** The engagement is consistent with the CPA firm's vision or business plan; The service requires specialized skills or industry expertise; ** The CPA firm's resources, including personnel, are sufficient to meet the needs of the engagement (e.g., timing, report delivery date, etc.); and The services requested pose independence or conflict-of-interest issues, such as those covered in the AICPA Code of Professional Conduct (including ET Section 100-1, along with Rules 101, Independence, and 102, Integrity and Objectivity). For instance, fees from a prospective client that would represent a significant percentage of overall firm revenue could be perceived as a threat to independence. Additionally, Interpretation 101-3, Performance of Nonattest Services, is particularly relevant when both attest and nonattest services may be performed. * Consider risks related to the particular engagement. This is a broad and imprecise activity and requires the attention of an experienced member of the CPA firm. It may include the evaluation of factors relevant to a specific engagement and prospective client, such as: ** The company's financial condition/status; ** The company's current and future economic and regulatory environment; ** The business acumen of company management; ** Turnover in company management and staff; ** The intended use of the CPA firm's work product; ** The company's proclivity to litigate as a means of resolving disputes; and ** Additional criteria that should be developed related to the profitability and realization for the engagement. …
Publication Year: 2013
Publication Date: 2013-07-01
Language: en
Type: article
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