Corporate client screening by auditors prior to acceptance

Abstract

Purpose: The purpose of this study is to analyse the need for audit firms to perform client screening prior to accepting clients due to risks associated in client acceptance. This also requires consideration of factors which determine whether to maintain a relationship with a client. Factors that are considered when assessing clients include the client's reputation, integrity, conflicts of interest and the client's history. Design: The objectives of this study were achieved through the use of questionnaires and eight semi-structured interviews with the Big 4, two Medium sized firms and two Sole Practitioners. Findings: This study concludes that all the Big 4, Medium sized firms and Sole Practitioners agree that client screening should be conducted before signing off on the engagement letter. The majority of firms have pre-defined policies in place for accepting clients. These procedures however vary between these firms due to the different client base. The Big 4 have the most rigorous and detailed process for client screening. Conclusion: This study concludes that firms consider client screening from different perspectives, where the Big 4 determine this from a risk management point of view, Medium sized firms consider their competency in accepting the engagement and Sole Practitioners emphasize the first time contact with the client. All firms consider whether actual/potential conflicts of interest exist. Due diligence procedures vary between local and foreign clients whilst Know your client procedures vary in proportion to the size of the audit firm. Nowadays clients are more after the service that audit firms can offer, although the Big 4 possess a large client base. The Big 4 however will never risk jeopardizing their reputation.