The Client Acceptance Decision: Is the Third Time the Charm or is it Three Strikes and You're Out?

The most significant risk faced by a CPA firm may be the risk of associating with an undesirable client. A pattern of frequent auditor switches could indicate that a potential client lacks sound, ethical management or has significant financial problems. Quality Control Standards of the AICPA require that CPA firms establish policies and procedures for deciding whether to accept a client in order to minimize the likelihood of association with a client whose management lacks integrity. This article examines a database of public companies that switched auditors twice within the period from 1989 to 1994. It is found that the primary reasons that these auditor switches occur include disagreements over accounting methods, audit fees, and concerns about management integrity.