Client screening and acceptance.

• Author: Raspante, John F.

CLIENT SCREENING policies and procedures have long been recommended as the first steps in an effective loss control program.

Such processes are now standard practice in the accounting profession. 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.

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Three main considerations in the client acceptance process are:

1) Is the engagement a good fit 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 are:

1. Capable of performing the services required by the engagements they accept.

2. Current in their knowledge by studying and performing the services often enough to be both current and proficient in them.

Claims experience shows that firms "dabbling" in services outside of their areas of expertise are not practicing them often enough to become proficient. Services that represent less than 15 percent of a firm's service concentration produce disproportionately high loss ratios. CPAs are expected to possess a thorough understanding of the client's business and industry in order to identify risk stress points in an engagement.

Some CPAs make an annual habit of redefining and understanding the scope of their own practice, writing out a clear statement of what they can do and cannot do. If they have clients who don't fit into that scope, they disengage and refer the clients elsewhere.

2) Is the client the kind of client the firm would like to have?

Spend some time thinking about what kind of clients you'd really like to have. If you're a new firm, you have the opportunity to select 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, ranging from the client's reputation and integrity to its commitment to appropriate accounting practices and to 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...