Risk, Experience and Client Acceptance Decisions

Abstract

Risk containment efforts are one of the most important activities of public accounting firms in today's litigious and highly competitive environment. Of these efforts, the first "line of defense" is the decision to accept a client. By effectively screening out risky potential clients, firms can guard against the risk of litigation. Despite its growing importance, little is known about how auditors make this decision. Professional standards state that firms should establish procedures for making the client acceptance decision and should "appropriately consider the risks associated with providing professional services in the particular circumstances." However, no guidance is provided about factors that should be considered in making the decision.