Magazine article The CPA Journal

When It Pays to Turn a Client Away

Magazine article The CPA Journal

When It Pays to Turn a Client Away

Article excerpt

One of your clients has had another poor year. The bonding company or lender is pressuring them for better results. They have developed a new accounting policy, and, as you expected, it increases income and equity. But you are concerned the new policy does not follow GAAP. This is a key client of the firm and brings in significant fees. What do you do?

This problem is occurring more and more. And, when it does, it forces you to make some difficult decisions. In weighing these decisions, you need to understand how awkward your position really is. You are required to tell the client, who hires you and pays your fees, that it is wrong and should not be done.

How to Tell a Client It Is Wrong

1. Get all facts in the situation.

2. Summarize the key points and discuss them with your client.

3. Have the client explain why they believe their position is preferable.

4. Fully understand the business reasons and economics of the client's position.

5. Research the applicable rules, regulations, and laws involved.

6. If your client is not knowledgeable about accounting rules, explain them clearly and logically in terms your client understands.

7. If your client doesn't care about the rules:

Ask yourself some hard questions about whether this is a client worth keeping. Ask others in your firm and in the profession if the client's position is viable. Have a heart-to-heart talk with the client.

Above all never compromise your and the firm's reputation no matter how tempting the fees may be.

Now compare your role to that of other professionals, such as a doctor or a lawyer. When they advise a client against doing something and the client does it anyway, the lawyer or doctor isn't required to tell the whole world about it. But if your client decides not to follow your advice, you must describe the incorrect action in your auditor's report, where all who have access to it will know.

Your client now has the option of staying with your qualified report or finding a new CPA. Unfortunately, more and more clients are shopping for CPAs who are willing to accept their positions. Although there are no easy answers to these problems, there are some guidelines you should follow.

Understand the Facts

The first step is to make sure you understand all the facts. Summarize the key points and discuss them with your client. Have the client explain why it believes its position is preferable. It may be helpful to include other members of your client's management team in the discussion since they may be the real source of the proposed change. They may also add clarification and help you understand the economics of what is being proposed.

It is critical you understand the business reasons and economics of what the client is proposing. At some point it may become evident to you there is or isn't a clear business reason for this new policy. If it hasn't come up already, ask what authoritative accounting literature supports the client's position.

Some clients may be well prepared with the accounting rules while others may say, "This is what I want to do: You figure out how to support it." You may get this response from small clients to large clients. They may tell you this because they are either client type A, not knowledgeable about accounting rules, or client type B not interested in complying with the rules. This is your first real hurdle.

Do Your Homework

Your next step should be to research the applicable accounting rules. Due to the proliferation of accounting standards and rules, the chances are high you will be able to find some information on point.

In addition to the accounting standards in the current text, some sources to consider are Emerging Issues Task Force abstracts, statements of position, practice bulletins, AICPA technical practice aids, audit and accounting guides and even text books. …

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