When a client pressures you over an adjustment
What an auditor should do when a client threatens to change firms or hold back fees unless an adjustment is dropped, and how to record each step.
By Achekam · · 4 min read · For Accountants & audit firms in South Africa, Nigeria, Kenya
The call usually comes late in the audit. The schedule of proposed adjustments has gone to the financial director, and the reply is not about the numbers. "If this stays in, we'll be looking for new auditors next year." Or: "We won't be settling the final invoice until the report is clean."
That is an intimidation threat in its plainest form, and how the firm responds says more about its independence than any annual declaration.
Recognising an intimidation threat
Under the IESBA Code's conceptual framework, threats to compliance with the fundamental principles are categorised as self-interest, self-review, advocacy, familiarity and intimidation. Intimidation is the one that comes from pressure: a threat, spoken or implied, aimed at changing what the accountant does.
It does not always sound like a threat. Watch for:
- a sudden question about whether the audit fee is "competitive", arriving just after a disputed adjustment;
- a request to replace a senior who "doesn't understand our business";
- a deadline pulled forward so there is no time to resolve a finding;
- a board member hinting that the firm's other work for the group is at risk.
Pressure often lands on the most junior person on site, who may not report it. Make it clear that any such remark goes to the engagement partner the same day.
Holding to the evidence
As quoted by ACCA, ISA 450 requires the auditor to communicate on a timely basis all misstatements accumulated during the audit to the appropriate level of management, unless law or regulation prohibits it, and to request management to correct them. Neither the request nor the evaluation that follows a refusal is optional.
The firm's best defence against pressure is a file in which every proposed adjustment stands on its evidence. In Achekam, lead schedules are built from the engagement's trial balance with each figure traceable to its lines. Staff can record an audit adjustment on a line with a reason, and findings can be raised from a working paper and then closed or withdrawn. When the client argues, the partner can show exactly which line, which evidence and which reasoning support the adjustment. If a finding is later withdrawn, the record shows that it was withdrawn and why, rather than that it quietly vanished.
How to put the request to management is covered in asking management to correct misstatements.
Consulting and recording each view
Pressure tends to isolate the partner. Bringing in someone else is both a safeguard and a record.
Achekam lets staff take a technical consultation on an engagement from question to conclusion and closure, and record a difference of opinion with each party's position, the escalation and the resolution (Quality & Governance, Technical Consultations / Differences of Opinion). Use it to set out the disputed matter, the client's argument, the team's view and what the consulted partner concluded.
Know the limit. In Achekam, an open consultation or difference of opinion does not stop the audit report from being approved or signed. Closing the consultation before signing is a discipline the firm has to impose on itself.
Applying the third-party test
Under the IESBA Code, threats are evaluated with the reasonable and informed third-party test: would a knowledgeable and objective outsider conclude that compliance with the fundamental principles, and independence, is maintained at an acceptable level?
Picture that outsider reading the e-mail trail. If the adjustment disappeared two days after the client threatened to change auditors, with no new evidence in between, the conclusion writes itself. If it was reduced because the client produced a valuation that the team then tested, the story is different, and the file must show that testing.
Where the threat cannot be brought to an acceptable level, the Code's answer is to eliminate the circumstance, apply safeguards, or decline or end the engagement. The IESBA itself names involving an additional reviewer as one safeguard. Where a disagreement remains unresolved at the end, the outcome is often a modified opinion, discussed in modified audit opinions.
Ending the relationship with a recorded reason
Sometimes the right outcome is to part ways. Where a client keeps its books on Achekam and has appointed the firm, either side can end the appointment; the firm then loses access to the books and the business keeps them. A reason is asked for, kept on the record and shown to the other side. Any formal steps that the law or the firm's regulator requires when an auditor leaves still have to be taken outside Achekam.
Wording the firm's reply
A reply to pressure should be short, factual and calm. A pattern that works:
- Acknowledge the client's concern and the value of the relationship.
- Restate the matter and the evidence, without adjectives.
- Explain what the auditing standards require the firm to do, and why.
- Set out what the client can do: provide further evidence, correct the item, or take it to the audit committee or board.
- Leave fees and reappointment out of the reply altogether.
The integrity principle, being straightforward and honest, governs the reply as much as the opinion. The IESBA's Code of Ethics page introduces the fundamental principles and the conceptual framework for evaluating and addressing threats such as this one.
Clients who threaten rarely follow through once they see the firm is calm, consistent and documented. And if one does, the firm has lost a client it could not have kept without losing something more valuable.
General guidance only, not advice on your own circumstances. Tax and payroll rules change: check the current position with the authority or your adviser.
