Client risk assessment guidance

During planning we assess the level of work we should undertake on the client on a specific and general basis. Specific additional work should be more straight forward to assess, but the general level of risk and required work will always (and rightly) be a subject to judgment.

We define in “Planning and risk based work profile assessment” the general questions we should be asking for any client and reporting period. This note provides further guidance on the factors we should consider when answering those questions. This is not meant to be a comprehensive list of all areas that could be possibly considered but is more to provide guidance as to some standard questions and serve as a thought provoker.

Before dealing with the general questions, we would highlight that there could be standard approaches taken for certain clients such as

1) flat management and/or dormant companies, small sole traders where we would do the minimum work so very few reconciliations/working papers; or

2) high risk clients (new, complex manufacturers, poor bookkeeping - again as assessed in 4 above) where we would look at all balance sheet areas and the material profit and loss items.

We will develop further guidance on these as we roll out Silverfin.

Factors to consider when assessing client risk and approach:

1) Client history

a) Is this a new client?

b) If existing client then

c) Is there a history of errors/problems

2) Quality of records (assess work depending on quality)

a) Do FC prepares management accounts?

b) Does client prepare management accounts?

c) Is the bank account reconciled?

d) Are accruals/prepayments posted prior to accounts preparation?

e) Is a fixed asset register maintained (additions/disposals/depreciation)

f) Is a PAYE/wages control prepared?

g) Are records manual or automated? Is the software suitable for the client

3) Limited Companies

a) Are there inter company or related party transactions?

b) Are there bank covenants 

c) Are the owners different people to the management?

d) Assess going concern issues

i) Insolvent balance sheet or expected to be insolvent? 

ii) Current liabilities greater than current assets?

iii) Are there any other going concern issues?

iv) Are there any claims/ contingent liabilities to disclose

v) Are there any leasing commitments?

4) LLPs 

a) Are partners capital/current account schedules sent to client?

b) Are there bank covenants 

c) Are there related party transactions?

d) Are there any claims/ contingent liabilities to disclose

e) Are there any leasing commitments?

5) Partnerships

a) Are capital/current account schedules sent to client?

6) Tax

a) Are the any ongoing HMRC enquiries?