Five steps to improve independence compliance process

Risk management is a continual process for accounting firms. Recent violators have paid the prices by not adhering to independence guidelines set forth by the SEC and PCAOB.  Most firms today monitor their staff’s independence with respect to financial interests and directorships through the use of an annual certification. However, firm leaders are realizing that a more pro-active approach to independence compliance is needed, requiring a higher level of due diligence by the firm.

Challenges to achieving independence compliance

Tracking and achieving independence compliance relies on highly manual and laborious tasks in accounting firms today — often requiring sifting through or transferring data from one place to another. In addition, many firms rely on their partners to proactively input their investment holdings on a timely basis and ensure that their holdings don’t cause impairments with respect to the firm’s audit client list. Well-intentioned partners are conscientious of this fact, yet this necessary task can understandably fall second to actual service delivery and business development.  The frequent outcome is that firms don’t have full assurance as to whether their covered members are free of independence impairments. Not only can firms be fined along with the associated hit to reputation, but clients may lose their trust in the accounting firm due to the violations. This erosion of trust hurts the client-firm relationship and, in worst case scenarios, leads to a termination of the relationship for future or even existing engagements.

5 steps to help firms track independence and ensure client trust

So how can firms take the tedium out of tracking personal independence and ensure trust with their clients? By following these five steps when fulfilling their firm’s client lifecycle.

Leveraging data for identifying and managing risk

 With the right technology, you can conduct a risk-aware process to bring on new business for your firm:

1. Quick-check for conflicts: Imagine, if you would, a new client calls and shows interest in one of  your attest services. Your lead partner simply opens an app to perform an initial pre-check on the company against her personal investments for any potential conflicts.  She also searches the company against the firm’s client database.  Both quick searches come back clear, so the partner knows there are no upfront red flags and the business opportunity may be explored further. Conversely, if an impairment is identified early in the business development process, the partner can save unnecessary effort by not moving forward or taking steps to implement safeguards to reduce identified threats to an acceptable level.
2. Search relationships: A full search is then conducted of the prospect’s corporate tree against the firm’s client database to ensure the firm is independent from the client as well as its subsidiaries.
3. Pitch for the business: If this search comes back free of issues, then the partner can run a search for the most qualified fee earners in the firm to help create the pitch to win the business.
4. Acceptance with a safety net: Once the business has been awarded, an intake form is completed and automated safety nets are put in place to continually monitor for any events or new firm business that could result in a threat to the firm’s independence.
5. Streamlined continuance: Efficiently run periodic client reviews to ensure your firm remains independent through the life of the engagement, while verifying that your client list continues to align with your firm’s values and vision.

The right technology, using a global member firm database as a foundation will play an integral role in your firm’s system of quality control while enabling your firm to seamlessly integrate independence checks into your firm’s business development and acceptance processes.

Want to learn more about independence compliance? Visit our website to discover how to properly manage your independence process.