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Evaluating Clients – Part Two – Assessing Potential Clients

A new prospective client is an exciting opportunity.  However, even if the prospect comes from a referral you need to get a complete understanding of the potential client’s business and have a chat with the former CPA.

At the initial meetings you will want to promote your firm’s services but also find out what sort of client the prospect might be.  You will need to know how the company is organized and staffed and how the business runs. You will need to:

  • Schedule a meeting with the CFO, treasurer or comptroller (Le. the financial manager).
  • Be granted access to specific financial information.
  • Secure a letter from the prospective client in which they authorizes all interested persons, and specifically its former CPA, to disclose all information requested by you and to freely discuss the client’s affairs.

There are other factors impacting the engagement you will want to discuss:

  • Your intent to check for conflicts of interest to ensure that you can represent their best interests without bias;
  • The client’s responsibilities during the proposed engagement.
  • What the engagement will not include (detection of defalcation or fraud, for example); and
  • The firm’s current fees and billing practices. Explain why certain services necessitate higher fees and, if there is the possibility that you will bill in advance, explain how that would work.If you get this far in the discussion, and there are no serious objections, proceed with the information-gathering stage of the evaluation process. When you ask questions, be assertive. Ask them in an unambiguous, non-leading manner. If you are not given access to the information that will help you get the answers you need, question why. Remember that it’s always easier to deckle not to enter an engagement in the first place than it is to have to terminate an existing client after an engagement has begun.


We have provided a Prospective Client Evaluation Form in the appendix that will help you organize the information you gather. If the client is not a business or other type of organization, look at the individual’s assets and sources of income, as well as the condition of the individual’s accounting records. Discuss the client’s financial needs and goals. If the client and his or her previous accountant do not give you enough information (especially with regard to problem areas), secondary sources can often give you the information you need to thoroughly assess a client. Many of these companies offer data base searches of legal proceedings (e.g., SEC litigation and administrative proceedings, bankruptcy proceedings, and federal, state and Canadian civil and criminal court cases) and news items at nominal cost (often under $200), and can often respond rapidly to a query.

Research organizations you might use include:

  • Bizminer.  Industry Financial Ratios and Industry Market Analysis
  • Competitors.
  • Dun & Bradstreet Credit Reports at (800) 234-3867, with offices in most major metropolitan areas. [Supplies information on credit stability including history, litigation, financials and rating and professional background of company officers. The service is not useful for credit information or evaluating the reputation of individuals.]
  • Equifax, Transunion or Experian.
  • Former employees.
  • Industry-specific research and consulting firms.
  • Mergent Online.  A fully searchable database with financials details of over 25,000 active and inactive companies:
  • Moodys’
  • Standard & Poor’s at (212) 2088000 [Supplies ratings and standardized information on 37 industry groups, stock, bonds, mutual funds, and the Standard and Poor's 500 and 100. Most large libraries contain S&P ratings and reports.]
  • Stock market research reports.
  • Suppliers and customers of the client.
  • The client’s lenders.
  • Weiss ratings service.

You may also want to check, or have a local service check, Public Access to court electronic records to determine recent legal actions involving the client.Certain industries have a high potential for involvement with organized crime.  The following “legitimate industry segments~ as having the highest involvement with organized crime:

  • automobile sales and repairs;
  • banking;
  • bars & restaurants;
  • construction;
  • entertainment;
  • food processing;
  • distribution and retailing;
  • garments;
  • hotels;
  • legal gambling;
  • liquor retailing and wholesaling;
  • real estate; and,
  • waste removal.

Next month: Evaluating Client – Part Three – Using Client Information

See previous post here.


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