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When to disengage

Disengage clientsby Rickard Jorgensen, FCII, ACIArb., ARM

Suspending services to a client can be fraught with problems and if not handled carefully could result in a malpractice lawsuit.  The following scenarios may be the most obvious signs that it is time for you and your client to go your separate ways.

Unresponsive or evasive clients

If a client is not providing the information you need to get the assignment completed and avoids discussions about outstanding information, it is time to evaluate your relationship.

Difficulty Obtaining Information

If a client is reluctant to provide data that is crucial to complete an engagement this is an indication of problem.  This could be careless record keeping or is it a deliberate delaying or holding back of information.  Caution is required where essential documents are withheld, or you are requested to complete an engagement lacking proper paperwork.  This type of behavior is a warning and repeated delays could be the result of a client’s unlawful or unethical activity.

Abrasive clients

Everyone has encountered that client that is abrasive and hard to deal with.  Sometimes this is due to personalities; sometimes this is by design.  If a client does not give you the information you need to complete an assignment or is hard to contact on important issues, there may be an underlying reason.  If the firm does not meet IRS deadlines and is subject to fines, you are the perfect scapegoat even though you tried your best.  It is better for your health to lose such clients than to struggle and end up losing money.

Changes to your client’s operation

A change in the business operations of a client requires a rethink.  Are you capable of continuing the services?  Do you have experience in the industry?  Do you have sufficient staff to perform the level of services needed? Conversely, is the client now too small for the billable hours rate you previously charged?  Any significant alteration to a client’s operations is going to change their relationship with your firm.  Maybe it is time to suggest a new CPA firm more appropriate to the client’s needs?

The client is acting illegally or unethically.

It stand to reason that if your client is not doing the right this, or patently doing the wrong thing, then you will eventually get drawn into the world.  This could badly impact your professional image, cause a censure or loss of a license, or even land you in jail.  Enron brought down a world class CPA firm, but smaller crime and misdemeanors could expose you to fines from the IRS, the SEC or other regulators.  If you suspect the client is doing something wrong, investigate and then takes steps to withdraw.

Deadbeats

If you are not getting paid and there is no good reason for this, take a hard, cold look at your file.  Are there grounds for client dissatisfaction – was the work performed poorly or over-budget?  Is there a misunderstanding over the bill?  Is the client experiencing money problems?  Or does the client regularly change CPA firms to avoid paying the full bill?  Find out the root cause of the issue and if it cannot be resolved without resorting to litigation, consider walking away.  Some insurers exclude coverage for malpractice countersuits arising from fee disputes. The AICPA ethics rules state that your independence is impaired if fees are outstanding for over 12 months.  Use this as a reason.

The composition and focus of your firm changes.

CPA firms change over time.  Firms merge or split, partners join or leave, and the specialty and expertise can change over time.  In the event of change do you continue to have the resources and expertise to provide quality service to your client?  If there is any doubt or lack of confidence that you cannot deliver the best service, then it is time to consider withdrawing and passing the client to a more appropriate CPA firm.  Similarly if your firm’s objectives and plans do not include working with a particular client or industry, then inform the client.  Your firm’s skills and plans should match your client base.

Conflicts of Interest

A potential conflict of interest should be carefully evaluated as it may impact your independence or objectivity.  Examine conflicts of interest from multiple perspectives, including the client, creditors investors, beneficiaries or family members.  Avoid emotionally charged situations.  A divorce, a business or partnership dissolution, or a family dispute will require a CPA to chose one party as the client to avoid conflict allegations. You cannot represents all parties even if they were former good clients.  It may be prudent to disengage and refer the party to another CPA and avoid being draw into the clients dispute.

If a CPA choses to accept the engagement, protection from a lawsuit by employing a hold harmless agreement or indemnification from all parties is crucial.  Getting the parties to agree on a working arrangement in key to a successful outcome of the engagement.

Worsening Relationship

If there are unplanned changes to a client’s business this may be a sign of a failing business, financial stress or personal problems.  These warning signs should not be ignored and you should be addressed immediately.  Unresponsiveness and avoiding telephone calls, or implied or expressed threats to sue requires prompt action and possible disengagement.

Acid reflux clients

Some clients are just not worth the stress they create.  They are mean to your staff, disrespectful, make overly demanding requests, complain or are argumentative and non-responsive.  The best case scenario may be to disengage.

Educate your clients

Let you clients know about what is expected of them and their responsibilities.  Apprise them of your responsibilities and establish expectations.  Ask staff to alert you about any client problems and make copious notes of all discussions, meetings and telephone calls to ensure that every interaction is documented.  These work papers may be useful in the event of a future dispute and assist your decision process when evaluating your relationship with the client.  If you do choose to disengage, make sure you start the process in advance of any deadlines or tax filing dates.  Give yourself enough lead time so that you can protect yourself from allegations of malpractice.

In Summary

Good CPA-client relationships are contingent upon excellent communication.  Stay informed to protect yourself.  Effective disengagement is good risk management and be aware of how to do it competently will avoid litigation.

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Jorgensen & Company are not attorneys and do not offer any form of legal advice. Consult with appropriately qualified local counsel for more assistance. Rickard Jorgensen is President and Chief Underwriting Officer for the CPAGold™ program and may be contacted at (201) 345 2440 or rjorgensen@jorgensenandcompany.com

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