Assessing a client's integrity before accepting
How a firm assesses the integrity of a client and its management before accepting or continuing an engagement, and what to record about it.
By Achekam · · 4 min read · For Accountants & audit firms in South Africa, Nigeria, Kenya
A prospective client wants an audit, quickly. The fee is attractive, the business is growing, and the directors are persuasive. They also changed auditors twice in three years, are vague about why, and want the engagement letter signed before the firm has seen the books.
Most firms have an acceptance form. Fewer have a real process for judging whether the people they are about to work with are honest. Yet integrity is the one thing a firm cannot audit its way around: if management is willing to deceive, every procedure becomes harder, every explanation needs testing, and the firm's own reputation is exposed.
What ISQM 1 expects
ACCA's article on ISQM 1 explains that firms must assess the integrity and ethical values of a client and its management, and their own ability to perform the engagement within legal and professional requirements. Firms must not let financial and operational priorities lead to inappropriate acceptance or continuance decisions.
ACCA adds that existing client relationships should be reassessed each year before reappointment. Integrity is not judged once and filed. A client's circumstances, owners and behaviour change, and the assessment should keep up.
The firm's own principles frame the question. The IESBA Code's five fundamental principles are integrity, objectivity, professional competence and due care, confidentiality, and professional behaviour. The IESBA defines integrity as being straightforward and honest in professional and business relationships. Assessing a client's integrity is, in part, protecting the firm's own.
Where the evidence comes from
Integrity cannot be measured directly, so the firm builds a picture from several sources:
- Background. Who owns and runs the business, what else they are involved in, and how long they have been in it.
- Reputation. What bankers, lawyers, other professionals and public sources say, with care to separate fact from rumour.
- The previous accountant or auditor. Why the relationship ended, whether fees are outstanding, and whether there were disagreements. Professional courtesy expects this conversation, and the ethics rules that apply to the firm may set out how it should happen.
- Behaviour during the proposal. Pressure for speed, reluctance to provide information, pushing on fees in exchange for "flexibility", or unusual requests about scope.
- The nature of the business. Cash-heavy activities, complex structures without clear purpose, or transactions with parties the client is unwilling to explain.
Each source on its own may mean little. Several pointing the same way should weigh heavily.
Keeping the fee out of the decision
ACCA's point about financial and operational priorities deserves attention. A large fee, a quiet season or a partner's personal relationship with the prospect can all push towards acceptance.
The IESBA Code's conceptual framework categorises threats as self-interest, self-review, advocacy, familiarity and intimidation. A strong wish to win or keep a fee is a self-interest threat; a long friendship with the owner is a familiarity threat. Under the Code, if a threat is not at an acceptable level, the accountant must eliminate the circumstance creating it, apply safeguards to reduce it, or decline or end the engagement where safeguards cannot reduce it to an acceptable level. The IESBA gives additional reviewers and restructuring responsibilities as examples of safeguards. For acceptance decisions, a second partner reviewing the file is a practical one.
What Achekam records, and what it does not check
Achekam lets a firm record a client acceptance review after a conflict check against its own clients and contacts, and only a signed-in partner can approve it. That gives the firm a dated record of who assessed the client and who approved acceptance.
There are clear limits, and a firm should plan around them:
- Customer due diligence in that review is a tick-box confirmation by the preparer. Achekam runs no automatic FICA, CIPC or sanctions check.
- Achekam does not screen prospects or clients against sanctions or PEP lists. The prospect profile's screening row always reads NOT RUN, and a person's PEP or sanctions status is only what staff record.
- Achekam does not keep client compliance profiles such as FICA documents, AML risk ratings or PEP screening. Its Compliance Profiles page says so and lists only clients missing a registration or income tax number.
So the firm's identity verification, anti-money-laundering risk rating and screening, under whatever rules apply in South Africa, Nigeria or Kenya, are done outside Achekam and the results kept with the client's records. The acceptance review then records that they were done and what they found.
When to decline
Decline, or end the relationship, when:
- management has been dishonest with the firm or with others in matters relevant to the engagement;
- the firm cannot obtain the information it needs to assess the client;
- the previous accountant's reasons for leaving raise concerns the client cannot answer;
- the threats identified cannot be reduced to an acceptable level;
- the firm lacks the competence or capacity to do the work properly.
Declining a prospective client covers how to communicate the decision.
Recording the conclusion
The file should show what was considered, not only the outcome. A short record covers the sources consulted, the concerns found, how each was resolved or why it was accepted, the safeguards applied, and who approved. Repeat it at each continuance, noting what has changed.
The conflict check that comes before this assessment is explained in client acceptance and the conflict check. For your next new client, call the previous accountant before the proposal goes out, not after the letter is signed.
General guidance only, not advice on your own circumstances. Tax and payroll rules change: check the current position with the authority or your adviser.
