bad clients can bring turmoil by increasing the likelihood of regulatory scrutiny, legal troubles and reputational damage.
by alan anderson, cpa
transforming audit for the future
in the realm of auditing, client selection is a critical decision that can significantly impact the health and harmony of your team and your firm. auditors should be highly selective about their clients because engaging with entities that lack ethical standards, have complex or opaque financial practices, or demonstrate a history of compliance issues can lead to substantial risks and challenges.
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when we discuss the types of clients that our teams find challenging to work with, we can divide them into these categories:
- the disorganized client: their workspace is piled with papers and schedules, and if you look on their computer, they’ve got a thousand unread emails in their inbox and 12 spreadsheets plus their accounting software and a couple of word documents open at the same time. the best way to work with these clients is to start early and feed them requests in sound bites. the last thing you want to do is send them a list of 27 pbc items and schedules and say that you need this on the first day of field work.
- the failing but proud client: this client’s business is a disaster, but they’re too proud to say anything about it. they’re afraid you’ll point out that they’re not a going concern. they won’t answer your emails, they won’t pick up the phone when you call and they’re never available when you come in to do fieldwork. these clients need a compassionate touch, and someone who will help them get a grip on reality. if you’re not willing to point out the truth, this is not a client you want to work with.
- the belligerent client: these people don’t like the idea of being audited, and they will make sure you know it and suffer for it. they want the work done according to their timetable. you may need to just fire these clients. they won’t be pleasant to work with and keeping them will almost certainly drive your best team members away.
- the nice but clueless client: these are frequently at the helm of a not-for-profit and are in it for the mission, but they are almost beyond the idea of how their organization is put together. their heart is in the right place, but they can’t do the job. our recommendation is to convert these from an audit client to a cas (client accounting services) client and send the audit work to a different firm. everybody wins here: we have the cas work so the books and records will be clean, which makes a nice package to hand off to the audit firm. the auditors can do the audit efficiently. the client gets more value out of the equation – they get the benefit of good books and a fractional cfo, but they’re paying the same aggregate dollars for the work.
- the penny pincher client: you’re always battling these people on fees. they’re always looking for a way to save a buck. if your firm is built on providing the lowest cost, most efficient audit, these may be the perfect fit for your firm. otherwise, they should be avoided like the plague. however, from my observation, these low-cost firms aren’t generally efficient. they’re just willing to accept a lower fee. to get there, they may eat time, they may cut corners and their quality may be suspect. my firm belief is that firms like these that are not looking to the future and are not adapting to provide value beyond the historical financial statement audit will go out of business.
- the audit has no value client: these can be similar to the last category. they need to get an audit so they can hand the report to their banker or whoever requested it. they’ll give you the minimum cooperation possible. these are best avoided.
- the never ready client: no matter how much lead time you give them, these clients will never be ready. i always say with ill-prepared clients: their problem, but our responsibility. if they don’t ever improve, then we either get paid for the extra work we have to do, or we fire them. this is an f client. if they cross over and also become a belligerent client, you don’t try to save them – those you just fire.
- the former auditor client: these can be good or bad. the good ones understand what you’re doing and will help make your job easier. they’ll anticipate your pbc list and will make sure everything ties out before you get it. the bad ones come in several flavors. there are the ones who think they know it all and are sure about what auditors look for. these want to be the hero to the client, so they’ll say they can get you all the schedules and even prepare the financials, so the fee should drop by 50 percent because they’ll be serving it all up to you on a silver platter. some will follow through and do everything they say, but the vast majority will never get even half of the work done. these people really don’t understand the scope of what a cfo is supposed to do, so they are continually behind the eight-ball. they may learn in time what the scope of a cfo’s job is, but until they do, they may be a nightmare to work with. another flavor of former auditors are the ones whose frame of reference is from 20 years ago, and they haven’t kept up. so it may be hard to get things from them in electronic format and they may also be dubious about any tech tools you bring in to help out. some former auditors will ask you to bend the rules for them. they’ll remind you that they used to work for you or with you and claim that they don’t really need to follow this rule. in this case, your best bet is to have buy-in from the business owner or president or ceo that you can hold their cfo or controller accountable. the worst of the former auditor clients are the ones who never appreciated the value of the audit, and who thought that auditing was just a game of chasing paper and a big waste of time. these you should avoid at all costs because they’re just not going to be worth the trouble.
- the i want it now client: these clients are terrible at getting you the information you request, but because it’s a one-sided relationship, their deadline never changes. so they still want the report tomorrow, even though you still have 15 open items on their end. keeping a trail of your requests and their lapses can help. there are tech tools out there that can help you keep track of those requests. the best tactic is to always be proactive in pushing the deadline back if they don’t comply. these clients may ultimately need to be fired.
- the only client in the world: do you have a client who just shows up at the firm office and demands to see you? no appointment, no explanation, but they need to meet with you right away. there’s always some perceived emergency that only you can fix. these can be very challenging to work with, especially if they never learn to respect you as a busy professional. your best bet with these may be to send them to an audit firm you don’t like.
- the gatekeeper client: when the cfo or controller demands that all questions go through him or her, this always raises a red flag with me. maybe they’re just a control freak, but maybe they’re trying to keep something buried, so they want to make sure that all questions go through them. be very cautious with these clients and be willing to dig in deep. make sure that you do enough procedures to make sure they’re not covering anything up. these can blow up on you.
problematic engagements often demand excessive time and resources, leading to burnout and diminished morale among team members. moreover, the stress of dealing with contentious client relationships can divert focus from delivering high-quality services to other, more cooperative clients. by carefully vetting and choosing clients who align with your firm’s values and standards, auditors can maintain a productive, ethical and harmonious working environment that fosters long-term success and professional integrity.