The client screening process is excellent practice management as well as risk management in that the process can be used to identify less desirable clients that may be keeping a firm from developing the client base it wants. The process requires evaluating all potential clients, and re-evaluating all current clients on a regular basis, at least annually.

When you're in a "down" time, screen tax clients for potential problems and to decide whether they are worth keeping. If the answer is no, screening now will give the client enough time to find another preparer, and the firm will be more confident in the clients it chooses to retain when their busy season begins. 

Any changes that might affect the professional relationship should be evaluated to help ensure that the firm is comfortable with its clients and is avoiding situations that could escalate into crises.

The following checklist highlights some of the red flags that it may be time to disengage from certain clients—ideally after they have paid their bills:

Difficult Behavior

Some clients may pay on time but are rude to staff and make unreasonable demands, or they may return phone calls but complain excessively, threaten to sue or are generally obnoxious, creating turmoil for the firm and its staff. Is this type of client worth keeping?

Difficult behavior may be an indication of a failing business, financial problems, substance abuse, or other personal issues. Uncovering the source of the problem might help, but it’s important to take swift action to remedy the situation or disengage before the situation worsens.

Withheld Information

When a client does not provide requested information, carefully consider the problem. Is it due to sloppy recordkeeping or is the client deliberately withholding information? If it looks deliberate, be cautious, especially if urged by the client to proceed without having proper documentation. Repeated delays could even be the result of unethical or illegal activity.

Changes in a Client’s Business

Changes in a client’s business may lead the client in a direction that causes the firm to reconsider the relationship. A client may, for example, buy a business that requires work the firm is not qualified to perform. Or a startup may grow and decide to go public, and the firm might not be in a position to perform the public work. Such changes may alter the professional relationship and could result in a situation that causes the firm to disengage.

Changes in the Firm

When the firm itself changes, the client base should be reviewed to determine whether or not the existing clients still make a good fit. For example, the loss of a partner with expertise that other partners don’t have will require a decision by the firm regarding continued service to the former partner’s clients. The firm may decide that it no longer wants to continue performing a particular type of work, or it may decide to grow its practice in a new direction.

Potential Conflicts of Interest

Consider all client situations carefully to spot potential conflicts of interest, which may affect the firm’s objectivity or independence—even if the firm is not engaged to do attestation work. Examine potential or actual conflicts of interest from a broad point of view, considering the client’s perspective as well as those of other stakeholders such as owners, investors, partners, beneficiaries and spouses. Troublesome scenarios can include a partnership breakup, a failed investment, bankruptcy, a trust, merger, divorce, or any event that can create opposing or disappointed factions.

Disengagement

When the firm decides to disengage, it should seek to terminate the relationship professionally and formally, in writing. A disengagement letter should always contain clear statements, a description of the work, and a list of any due dates or filings. At a minimum, the disengagement letter should always contain the following:

• A clear statement that you are disengaging and the effective date of the disengagement (e.g., We must formally end our relationship with you as your accounting firm <effective immediately, or as of [date]>.);
• A description of any work that is in process or unfinished; and
• A statement of any due dates or filing deadlines that exist with regard to the work, whether finished, in process, or unfinished.

Provide ample lead time before any of the client’s deadlines to better protect the firm. The client need not feel antagonized in any way. Effective disengagement can leave the client feeling that the firm has acted in the best interests of both parties.

Communication is a key factor in any CPA–client relationship, and staying informed and in control will better safeguard the firm. In the end, disengaging is good practice management, and knowing how to do it skillfully and professionally will help minimize liability and grow the practice.