Critical Considerations in the Selection of an Accountant
This ninth post in my Deciphering Financial Statements for Non-financial Professionals series discusses important considerations when selecting an accountant for your business. In this series of posts, I provide insight into financial reporting and related topics geared toward non-financial professionals who are required to understand financial statements as part of their professional roles. I encourage you to also read the other installments in the series, both past and future, particularly the introduction as that post establishes the series and includes a number of resources you may find useful.
I’ve heard it said that when in Las Vegas, you can eat well and you can eat cheaply, but generally not at the same time. A similar correlation could be applied to accountants. As your business grows in complexity,an accounting firm with more resources and experience, and generally higher overhead, will be necessary. Your accountant should be a valuable and trusted resource for you and your stakeholders. Developing a productive business relationship with your accountant always pays off and the selection of an appropriate accountant is a critical decision. It’s also something that changes over time. What works well for you and your company today might not be the right fit in 10 years. Outside of a formal procurement process there are two approaches that I encounter:
1. Service Approach/Individual Driven: An accountant makes themselves known (professionally or socially) to key people within an organization; or
2. Technical Approach/Organization Driven: The accounting firm makes themselves known (e.g. advertising) or is sourced by the organization based on perceived skill sets.
What often happens is that the organization subsequently decides that either the person or the organization fits their needs and doesn’t always undertake the same level of due diligence for the other side of the equation. My experience is that long term relationships work best when both accountant and accounting firm work for the organization, finance team, and stakeholders. This requires careful consideration of your business’s needs and matching those with an appropriately qualified accountant or accounting firm. Making such a decision in the absence of careful research and deliberation is akin to gambling with your business’s future.
Are all ‘Accountants’ the same?
It’s key to understand that the term ‘accountant’ is an unregulated term in many jurisdictions, meaning that anyone can choose to market themselves as an accountant, regardless of their educational background or experience.
For this reason, its best to select a professionally designated accountant, such as a CPA, as this ensures they will possess necessary qualifications and will be bound by a set of rules with respect to ethics and maintenance of professional qualifications and standards. Further, an accountant possessing such a designation or under the employ of a major accounting firm provides you with recourse should things go poorly as the accounting institutes and major firms typically have formal review and disciplinary processes (and appropriate insurance if it gets that far).
Assessing your needs
Before you begin to evaluate candidates, it’s important that you put some thought into what you’ll need your accountant to do for you. Individuals will have different qualifications, sector/client size experience, and fee structures. Accounting firms will likewise specialize in differing sectors, maturity and size of clients and technical services such as specialist tax or corporate finance. They will also choose to service clients in a different way. Some locate specialist teams locally, others locate them in hubs.
It’s key to match your needs with your accountant to ensure you have the necessary resources at your disposal while not overpaying for access to resources that you won’t likely need. A few key items to consider:
- Assess your internal resources: if you have a qualified accountant on staff who can prepare tax returns and perform bookkeeping, your needs of an external accountant may be limited to such items as audit, tax planning and/or consulting. Conversely, where you have limited internal resources, you may look for an accountant that can explain the basics in layman’s terms and be trusted to take care of the day-to-day bookkeeping, payroll and CFO services in addition to an accountant to take care of audit and consulting.
- Consider your future plans: your business may be small and simple today, but what about next year? If you have plans for significant growth and expansion, you’ll need an accountant with resources to serve you through this process. Where businesses go through significant change, it is often the ‘unknown unknowns’ that are the most significant threat. In this scenario, a proactive accountant with business experience with companies similar to your aspirations will help you avoid unknown liabilities or missed opportunities as you grow.
- Geographical considerations: where your business has, or aspires to have, operations in multiple jurisdictions it’s key to have an accountant with experience and/or a reliable network in those areas. This may prevent you from needing to locate a qualified accountant for each geographical area and allow you easy access to information regarding those areas. International operations often mean increased complexity, and sometimes uncertainty, particularly from a tax perspective - and weakness in this area can quickly lead to costly penalties or missed opportunities.
So, how do I know which is the right accountant for me and my business?
If you’re not already familiar with the local firms that have expertise in your areas of operations, the best place to start may be your peer network. Who are they using and why? Are they pleased with their service? Once you’ve short listed, consider interviewing the candidates, ensuring that the people you see are the ones you will be working with. Drill all the way down to the manager who will be servicing your account if necessary.
Challenge them to explain the issues they see your business facing and how they suggest approaching those issues. You may include the following considerations in your queries to ensure they’re a good fit:
- Is yours an industry focus for them? Most industries have particular quirks and it’s important that your accountant understands such items. It can have a significant impact on the audit and/or accounting process and the resulting impact on your time and the final bill.
- Are you appropriately matched in size and qualification? In order to ensure service and qualification satisfaction, its key to work with a firm that sees your business as a good match for them and vice versa. You won’t benefit from being a “C-list” client.
- Do they have offices in all of your current and planned business locations or otherwise have local expertise to match where you do business?
- Who will be doing the work on your account? It’s prudent to meet the staff that you’ll be interacting with on a regular basis to assess their qualifications and service style.
- Are the personalities a good fit? Your accountant will be an integral part of your team and, just as when you’re hiring an employee, you’ll want to ensure there’s an absence of red flags that you or your staff won’t work well with them.
- Do they have a strong professional network and, if so, are they open to making introductions for you? A well-connected accountant can be an invaluable resource to locate other professionals that can be vital to the success of your business.
- Ask them to describe a specific instance where they have provided exceptional value to a client. Their response may provide insight into how well they serve their clients and what their concept of value may be.
Only once you’re satisfied that the firms you’re meeting with are qualified and appropriately matched to your business should you discuss fees - otherwise you risk comparing apples to oranges. It’s entirely appropriate and prudent to request hourly rates and billing practices to avoid surprises further down the road. If you’re requesting a specific scope of service, you should always ask for a fee estimate including any assumptions applied to determine the fee estimate. Unrealistic assumptions are a sure indicator that extra billings will be coming.
Finally, revisiting your choice of accountants from time to time, particularly where your business has changed or where you’ve experienced service problems, is both appropriate and prudent.
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