Magazine article The CPA Journal

The Top Ten Client Screning, Acceptance, and Termination Considerations in Tax Engagements

Magazine article The CPA Journal

The Top Ten Client Screning, Acceptance, and Termination Considerations in Tax Engagements

Article excerpt

CPAs in all areas of practice encounter client screening, acceptance, and termination (CSAT) scenarios daily. CSAT is without a doubt the first line of defense against a malpractice claim and an important part of a firm's quality control process. The ten considerations discussed below are those the authors have seen most in their particular areas of expertise.

Client Acceptance Committees

Many CPA firms have formal client acceptance committees, while others form ad hoc committees for certain highrisk clients or unique engagement circumstances. In addition, other committees specifically prohibit excluding any partner who brings in a prospective client from the decision-making regarding that client's acceptance. Regardless of the particulars, the process should ensure that new clients are not accepted without careful thought and consideration. A firm should document the committee's discussion, including final acceptance, using a checklist that includes each committee member's signoff. In larger firms with multiple locations, the use of electronic documentation and signatures may be the most efficient and timely way to manage the process. The use of client acceptance committees should not be limited to large firms; small firms can use less formal committees and still accomplish their objectives.

Client Acceptance Procedures

While a checklist is the ideal method for client screening, some firms may use something less formal. Whatever the process, firms should determine the prospective client's industry (or occupation, if an individual) and the necessary skills or competencies to complete the engagement. Firms should also be mindful of the ethical considerations regarding competency and refer to the AICPA Code of Professional Conduct section 1.300.010 ( codeofconduct/Ethics.aspx) and U.S. Treasury Circular 230, "Regulations Governing Practice before the Internal Revenue Service," section 10.51 ( A firm should carefully consider the time required to complete the engagement, make sure the client's expectations are consistent with the engagement letter, perform background checks, communicate with the prior tax preparer (after obtaining consent), carefully monitor clients with delinquent filing histories, identify any conflicts of interest, and approach with caution any clients who have changed preparers frequently. A review of prospective clients' websites may also reveal significant details. If the firm performs engagements in accordance with PCAOB standards, it should consider maintaining a list of individuals who meet the definition of a person in a financial reporting oversight role at issuer clients, in order to avoid impairing the firm independence under PCAOB Rule 3523, "Tax Services for Persons in Financial Reporting Oversight Roles."

CPAs should inquire as to whether a client has current or former foreign bank accounts, which would trigger certain tax compliance matters not initially considered by many businesses and individuals. Finally, if the client was referred to the firm, the referral source should be reviewed. If the referral source is of high character, chances are the prospective client will possess the same. Firms should be skeptical of a client who has no referral source.

Background Checks

Despite the ease and speed with which it can be performed, an astonishing amount of firms fail to conduct even the simplest kind of background check. As with a client acceptance committee, the process can be quite formal, such as with the use of a third-party background check company, or it can be as simple as a review of public information available on the Internet. The results of a simple Google search can be revealing and could prevent the firm from engaging an undesirable client. In addition, the engagement team should discuss speaking to the prospective client's prior tax preparer (consent is required), legal counsel, bankers, and other strategic professionals. …

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