Question

You are an audit consultant at a top tier accounting firm that is celebrating another year of fee income growth from one of its most important audit clients, a huge telecommunications business (think Telstra / Vodaphone). The last audit you did for this client had run smoothly from your company’s point of view, despite some hiccups on delivery times and quality control, but overall, your accounting firm were happy with the depth of this client relationship and its position to keep their business (future tax and consulting projects to the accounting firm of around $1.6 million).

However, yesterday, the telecommunications client asked for an internal review of your account service to negotiate a revised audit fee for the following three years. This leaves you and your accounting colleagues mystified as to why they want to do this.

The client spoke to you yesterday, requesting a meeting to discuss and have stated that they were generally happy with the relationship but asked that the lead audit partner from your firm be removed from the team and they also want to lower the total audit fee by 15%. This will have a negative impact of $185,000 on the accountants.

Instructions (in pairs):

1. Meet with the client (your trainer) who will act out the above scenario.
2. Try to understand your client’s requirements / needs using some of the techniques covered in this unit e.g. listening skills, note-taking, confirming client requirements, responding effectively to client feedback.
3. Try and resolve any conflict or ill-will (if there is any) so that you don’t lose this client and the future work amounting to $1.6 million.

Answer 1

As stated in the question, the real negotiation will happen only once the client meets the firm's representatives.

However, there're few pointers for discussion:

The reason for requesting removal of lead audit partner should be explicitly provided in writing with evidences supporting the ground of removal. Unless these are provided, it only remains a speculative condition on unambigous grounds.

The reason for reduction in audit fee of 15% also should be requested from the client.

An audit fee is usually comprised of the hours spent by the audit team with rates assigned as per respective levels. Hence, a partner will have highest rate followed by audit manager and audit staff. Although there're multiple reasons why the client has requested for a fee cut, following reasons might be analyzed to understand further:

• The actual time spent by the audit team is much lesser than the efforts mentioned in the audit quote. This can be a big factor since all controls are in place and there's no reason to spend unnecessary time on audit.
• The audit fee is weighed more on the hours & rates of the senior staff being audit partner and audit manager. Since a signing partner spends lesser time in an audit only at conclusion, it doesn't make sense to factor higher efforts.
• The audit team unnecessarily drags the audit with no relevant findings only to justify a higher audit fee. This can a productivity issue for the client and they might want to check this going forward.
• There's lot of price competition in the market and other firms might offer a lower quote for the same client which forces the client to accept the lowest cost under their procurement policy. This might be a reason for the client to request the firm to reduce fee by 15%.

While meeting your client, perform the following to ensure smooth conversation:

• Meet the client with warmth and hospitality. Don't express your concern in your behaviour
• Show empathy to the client by listening them patiently and expressing your understanding.
• Always assure the client that their business is very crucial to the firm and they're quite serious in retaining them.
• Try and convince the client on the price hike related with relevant factors like inflation, salary hike to staff, higher cost of engagement etc.
• Always keep the client in confidence that the outcome will be in their favour so they stay invested in you.
• Follow-up with repeated meetings to negotiate further before taking further action.
• Try and find a mid-way which is win-win for both parties.