By Phil Cowperthwaite
Illustration: Mike Ellis
Ensuring your clients are the ones you really want takes time and effort, but in the end it’s a win-win for everyone
Every professional wants quality clients, that is, those with some combination of professional challenge, acceptable engagement risk and a good fee recovery. But many practitioners have what they consider difficult clients, who are just plain hard to service for a variety of reasons.
The importance of having and maintaining quality clients seems self evident. Difficult ones can be overly demanding on staff and firm resources for the fees they are willing to pay, may treat professional services as a necessary evil, and carry a higher than normal engagement risk.
A quality client is not always one that is easy to service. However, the risks and challenges are understood by everyone involved in the engagement and the value added by the professional is appreciated.
So how do practitioners determine which clients are best suited to them and their firm and, just as importantly, how do they go about shedding those that are overly difficult to service?
Establish quality client service and quality client profiles
As a practitioner, it is essential to determine what the attributes of quality client service are to you and, equally important, what a quality client for your firm looks like. Unfortunately, this is not a one-size-fits-all exercise.
One way to establish what quality client service and a quality client look like from the auditor’s perspective is to develop a profile for both that are unique to the firm and the practitioner. Evaluating new and existing clients — and the ability to service them — against these profiles is an important first step to consciously building a practice full of quality clients.
Quality service To deliver quality service, think about what your firm considers quality service and determine whether you can deliver that service on a client-by-client basis.
Good practice management is not only profitable, it is also a requirement — many of the attributes of quality audit service are requirements in Canadian auditing standards (CAS). Specifically:
- Does your firm have sufficient competencies to do the work [CSQC1.30 & .31; CAS 220.14]? For example, if you are asked to report on a statement prepared in accordance with international financial reporting standards and you have little experience with the framework, can you obtain the skills required?
- Are timelines sufficient to allow for an appropriate level of service? If they are unreasonably tight, then the quality of service may suffer.
- Are fees likely to be appropriate to the skills and time required to perform the engagement? If not, then there could be unwanted pressure to cut corners to make up time. Also, the engagement could be delayed in favour of completing more profitable business first. Service could suffer as a result.
- Are communications with the client likely to be conducive to a quality engagement? For example, if a prospective audit client does not want you to do the work on site, will you have access to the people you need to talk with to provide quality service?
Quality clients Consider what type of client is important to you. Factors to consider when establishing the profile of a quality client could include, but are not limited to:
- The client’s field of operations — professional service is about adding value to clients and the ability to add value is increased if you know the industry. Having the necessary competence and capabilities is required under CSQC1.26(a) and CAS 220.14, so consider your areas of expertise. If you contemplate accepting a client in an unfamiliar industry, do you have the requisite competence and capabilities to provide quality service and, if not, are you willing to invest the time needed to get up to speed?
- The size of the client — just like its industry, the client’s size should fit your firm’s skill set. A firm focused on small clients is likely to find servicing a large client just as much of a challenge as a firm focused on large clients trying to service a very small one. In addition, accepting an out-of-profile large client may jeopardize a firm’s ability to serve its customary small and medium enterprise client base efficiently over the short term. Size does matter and is a factor in selecting quality clients. What size of client is most effectively and efficiently serviced by you and your firm?
- The client’s financial position and future prospects — are you willing to accept a client that is in a weak financial condition? You might think twice before continuing with or accepting a client with a significant accumulated deficit or a prolonged history of losses. Clients at risk of contravening debt covenants and other commitments may also carry more risk than is acceptable to the firm. Again, your firm needs to determine the level of risk it is comfortable with and set its criteria accordingly.
- The state of the books and records — an accurate, timely and organized set of books and records is a treat to audit, review or compile. At the other end of the spectrum, an error filled, incomplete and disorganized set of books and records can be a nightmare. It really pays to do due diligence up front, so ask yourself how much pre-engagement work you are willing to accept and if you are willing to work with any accounting system or bookkeeper [CAS 210.06(b)(ii)/A18]. Again, establish what you consider an acceptable accounting environment and add that to your quality client profile.
- The client’s understanding of the engagement — audit and review engagements in Canada are conducted on the fundamental premise that the client has responsibility for the preparation of the financial information presented [CAS 210.06(b), CICA Handbook — Assurance 8200.18]. The client’s responsibility for preparing the financial information is generally reflected in the entity’s incorporating legislation. Do management and those charged with governance understand and acknowledge their responsibility for the financial information reported? If not, the practitioner will be unable to accept the engagement. This premise is especially important when considering engagements with smaller clients who often do not have in-house accounting and financial reporting expertise. The client’s willingness to take the time to understand the financial information and take responsibility for it is an important aspect in selecting quality clients.
- Client integrity — is fundamental to a quality client. There is no faster way to increase engagement risk to an unacceptable level than to deal with a client that lacks integrity. A firm must have acceptance and continuance policies and procedures to consider the integrity of a client [CSQC1.26(c)]. Obtaining information about the integrity of the client and comparing it with your quality-client profile assists you in reaching appropriate conclusions about acceptance and continuance of an engagement. Ensure that you add integrity to your quality-client profile.
Using your profiles
Quality-client service and quality-client profiles are only helpful if they are used. And that means taking the time to compare prospective or existing engagements against these profiles.
If a prospective or an existing engagement does not fit your profiles, then you need a good reason to accept the engagement. At stake are higher-than-acceptable engagement risks at best and a failed engagement at worst, coupled with lower-than-acceptable profit margins.
Consider developing a one-page checklist that works for your firm, listing the attributes you consider essential to performing quality service and gauging the quality of a client. Complete the checklist before accepting a new client. Do this again at the end of every continuing assignment to evaluate whether the client continues to be right for you, your staff and your firm.
Disengaging from difficult clients
How can you disengage from a difficult client? How about one that has been a client for years?
Chances are difficult clients could be as dissatisfied with your service as you are with them. In addition, staff members are likely not thrilled with having to work and deal with a difficult client year after year.
If you have identified a client that does not fit your quality-client profile and you have decided to end the relationship, consider the following:
- have an engagement team meeting to make sure you clearly understand the team’s concerns and it understands yours;
- if the client is an audit client, ensure your concerns are clearly documented in a letter to those charged with governance no later than the end of the engagement [CAS 260.16(b) and CAS260.22]; and
- advise the client you will be terminating your relationship shortly after the current engagement is complete. Delivering this message is always stressful. But delaying it to the week before next year’s engagement is to start is unprofessional.
Quality clients are good for everyone. They receive the best service and staff members enjoy being part of the engagement team. By definition, quality clients also have a risk profile acceptable to the firm culture and good fee recoveries.
But — just like any relationship — making sure all your clients are the ones you want takes time and effort. Figuring out what you are looking for in a client relationship, comparing this with the attributes of current and prospective clients, and taking action to end unacceptable relationships is a formula for success for both your firm and for your clients.
Phil Cowperthwaite, FCA, is a partner of Cowperthwaite Mehta and a member of the IFAC’s Small and Medium Practices committee
Technical editor: Ron Salole, vice-president, standards (retired)
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