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Third party risk

Higher Standards: Building and keeping customer relationships the right way

Jon Baron  Managing Director, Professional, Tax & Accounting, Thomson Reuters

Jon Baron  Managing Director, Professional, Tax & Accounting, Thomson Reuters

In today’s highly digitized and hyper-connected world, a company or firm’s reputation for transparency and accountability is under scrutiny like never before. And it’s not just a question of how you conduct business but also whom you do business with that must be factored into your business plan.

We sat down with Jon Baron, managing director of the Professional segment of the Thomson Reuters Tax & Accounting business, to discuss what accountants should look for when entering into and maintaining client relationships:

JON BARON: Accounting firms are comprised of highly ethical professionals and therefore they need to be concerned about their reputations. If something occurs with a client that may result in negative publicity, it can be a significant problem for the firm; in today’s digital, social world that opportunity exists extensively. Word can spread pretty rapidly with respect to your association with that client. It really has to do with reputational risk to your own business. Do you have a client who at some point in the future may be exposed and viewed in a negative light, due to their background or to current activity with respect to how they are managing their business? How clients conduct business really impacts both of you.

Accounting firms have regulatory requirements with respect to knowing and understanding their clients and confirming details provided by their clients. But in today’s world, unfortunately, there are bad actors out there that may think they can take advantage of an accounting firm. If we don’t understand fully their background, we can miss important indicators. For instance, have they been caught in some level of fraud, or has someone in a senior management position with that client had something in the background that might make you scratch your head? Are there things that cause you to be concerned that you may want to walk away from that client?

By knowing how they conduct business, you are not only safeguarding your reputation but you are also able to serve them better and to help ensure that everything they do conforms to regulatory requirements.

DIVIDENDS: What are warning signs you should look for in a client’s background?

BARON: For current clients, it would be something such as, have you seen a major change in their finances? The business all of a sudden can’t really explain why it is reporting different revenue, or it is experiencing a different level of expenditures than you anticipated.

For new clients, you would want to look at how long have they been in business and what type of businesses they have been in previously, if any. If they are an existing business, obviously you can look at their financial statements and dig out a bit more detail to understand how they are operating, what they are reporting and how they are reporting it. Look at their controls within the business to make a determination. Again, look at how they operate. All of this you are doing today, but I would personally add some level of background check on the business itself as well as the key leaders within the business. Who is running the business, who are the vice presidents, etc.? Obviously when you perform background checks you have to be up-front with the client, letting them know that it is just a standard course of business that you do.

DIVIDENDS: What other advice do you have for accountants as they get to know new clients?

BARON: I think understanding a client’s background, knowing more about them personally than may  first be evident in the initial meetings is important. Check out their background as thoroughly as you can in the social networking world. You have a lot of capability to know and understand more about the individual and see what business associations they are in. Social networks allow you to really determine what that client is about. There’s a wealth of general information out there.

Another recommendation is to leverage the power of referrals. Most accounting firms get their clients from referrals. You would likely be able to check out their background based on who referred them and explore that a little bit.

I’d also recommend, if a firm doesn’t have one, developing a new client checklist, a template that says, “Here are my ethical and business standards and here is the profile of the clients I will accept. Here’s what their business operations need to look like, here’s how I expect they conduct their business, etc.” Remember, in today’s world accountants may be judged by the actions of their clients so you want to make sure that whom you are doing business with is someone who aligns with your values and standards.


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