Accounting practice due diligence

Diligence on an accounting practice is less about finding a single fatal document and more about pressure-testing three assumptions almost every offer is built on: that the client base will actually stay, that the work-in-progress on the books is really worth what it says, and that nothing regulatory is quietly attached to the practice. Each of those assumptions can be tested with specific documents and questions, and a buyer who works through them methodically is in a very different position at closing than one who took the seller’s summary at face value.

Testing the client base beyond the revenue total

A single blended revenue figure hides the risk that actually matters — how much of that revenue sits with a handful of large clients who could plausibly leave with the selling partner, versus how much is spread across a genuinely diversified base. Ask for a client-by-client schedule showing fee size, tenure, engagement type and who at the practice has historically handled the relationship, and cross-check it against the highest-billing accounts specifically, since concentration in the top few clients is where a deal’s real risk usually lives even when the overall book looks diversified.

Work-in-progress needs its own verification

Reported work-in-progress can inflate a practice’s apparent value if it includes time on files that will never actually be billed — work on a complex file that stalled, time written off quietly rather than disclosed, or estimates that were never reconciled against what clients actually paid. Ask for the realization history behind the current work-in-progress balance, not just the balance itself, and treat a seller who cannot produce that history as readily as a seller who can very differently when weighing how much to trust the number.

Licensing and disciplinary history, checked directly

Confirm directly with the relevant provincial CPA body that the practice, and the individuals delivering audit or review engagements, hold the standing needed to keep doing that work, and ask specifically about any open or past professional-liability claim or disciplinary matter. This is not a step to take on the seller’s word — provincial bodies maintain their own records, and a claim or disciplinary matter that surfaces after closing, rather than before, becomes the buyer’s problem to manage with far less leverage than they had during negotiations.

Confirm the professional-corporation ownership structure

In provinces that let CPAs deliver public accounting through a professional corporation, that corporation’s equity is not open to anyone — the provincial CPA body limits who may hold shares in it, typically to licensed members and, in some provinces, specific permitted family arrangements. Diligence should confirm that the practice’s existing corporate structure actually complies with those rules today, since a lapse — a shareholder who was never properly licensed, or never removed after their standing changed — is a compliance gap the buyer inherits along with the practice. It should also confirm, separately, that your own post-purchase equity position will itself satisfy the same rules, because a purchase built around a holding company that does not qualify under the provincial body’s ownership rules can stall at the registration stage even after the purchase agreement is signed.

• Client-by-client schedule: fee size, tenure, engagement type, historical relationship owner
• Realization and write-off history behind the current work-in-progress balance
• Confirmation from the provincial CPA body of current standing and any disciplinary history
• Staff retention agreements and how long key associates have been with the practice
• Professional-liability insurance history and any claims made or reserved
• Confirmation that the practice’s professional-corporation share structure — and your own planned structure — complies with the provincial CPA body’s ownership rules

Staff retention risk, verified rather than assumed

A handover that lands mid busy-season, with staff who hold the actual client relationships uncertain about their future, is one of the more common ways a practice’s value erodes after a deal is signed but before it closes. Talk to key staff, where the seller will permit it, about their intentions, and build a written retention or transition plan into the deal rather than assuming goodwill will hold everyone in place through a tax season under new ownership.

What consent-rate findings actually mean

If early client outreach — even informal soundings the seller has already done — suggests consent rates trending below what the deal assumes, treat that as a genuine finding, not noise. A gap between assumed and actual consent rates is the most common reason accounting practice deals get renegotiated or collapse after signing, and it is far cheaper to discover and price into the deal during diligence than to discover it during the first post-closing filing season.

Reading a clean file for what it does not show

A practice with tidy financials and no obvious red flags is a good sign, but diligence should still confirm the negative — that no undisclosed liability, no lapsed insurance and no pending regulatory inquiry exists — rather than treat the absence of a problem raised by the seller as proof none exists. Get independent confirmation wherever the provincial body or a public registry allows it, and use professional advisors who do this work routinely rather than relying solely on the seller’s own representations.