An accounting client can look attractive in a fee schedule and still consume more work than the fee supports. The hidden gap usually sits in unrecorded partner time, repeated information chasing, rework, queries, extra entities, unpaid advice, write-downs and tasks that have drifted beyond the agreed scope.

A buyer should therefore assess scope-to-effort economics, not fees alone. Rebuild what each material client actually receives, who performs it and what the practice ultimately collects. Then decide whether the mismatch is isolated, repairable through a credible process, or embedded in the client relationship and the earnings being acquired.

Why the reported fee can conceal the real workload

Annual revenue reports normally show invoices or recognised revenue. They may not reveal the hours written off before billing, work completed outside the job code, owner time never entered, or recurring “small favours” absorbed to preserve a relationship. A client can also be profitable in a quiet month but create a review bottleneck at year-end.

Keep four concepts separate:

  • Underpricing: the agreed fee is too low for the work reasonably required to deliver the agreed service.
  • Scope creep: the service delivered has expanded beyond the documented scope without a corresponding fee or formal variation.
  • Delivery inefficiency: the scope and fee may be reasonable, but rework, poor allocation, weak systems or inadequate client information inflate the effort.
  • Strategic subsidy: the practice knowingly prices one engagement below cost because it expects value elsewhere in the client group or relationship.

These causes have different remedies. A fee increase will not fix avoidable rework, while a workflow change will not remove a promise to provide unlimited advice for a fixed price.

Build a client-level scope-to-effort schedule

Start with a de-identified population and give each related client group a stable code. Australian Government buyer guidance recommends independently checking financial records, operations and legal documents and reviewing three to five years of financial information (business.gov.au). For this question, the general ledger is only one side of the evidence.

Request, by client group and service line:

  • current and earlier engagement documents, proposals and approved variations;
  • invoices, credit notes, write-offs, discounts, refunds and cash collections;
  • WIP reports, job budgets, time entries and explanations for missing time;
  • job start, completion, lodgement and review dates;
  • staff grade, charge rate or cost information, partner and manager review time, and outsourced work;
  • recurring tasks recorded in practice-management or workflow systems;
  • email or ticket categories showing repeated queries, follow-ups and out-of-scope requests;
  • entities served, complexity changes, client-preparation quality and the last fee review; and
  • complaints, fee disputes, disengagements and proposed price increases.

Reconcile total billed fees to the accounts, then reconcile recorded effort to payroll capacity and workflow completions. Time sheets are useful but not automatically complete: test whether partners, salaried staff, administration, corrections and client chasing are consistently recorded.

Trace sample clients from promise to delivery

Select samples across fee bands, service lines, partners, client tenure and apparent profitability—not only the largest clients. For each sample, read the engagement and identify the promised deliverables, exclusions, client responsibilities, fee basis and process for extra work. Then compare those terms with the actual file, workflow history, correspondence, time, invoices and collections for complete service cycles.

APES 305 requires members in public practice to document and communicate engagement terms and includes guidance on engagement-letter content and recurring engagements (APESB). For tax and BAS services, the TPB says written arrangements can reduce uncertainty about fees and scope, recommends regular review of ongoing arrangements, and identifies the work description, client obligations and fee calculation as matters to cover (TPB).

That does not make an engagement letter proof of profitable delivery. It gives the buyer a baseline against which to identify undocumented additions. Examples include an extra entity added to a group, more frequent management reports, payroll support, software troubleshooting, urgent calls, historical clean-up or repeated correction of incomplete records.

Reconstruct realised client economics

Use a consistent bridge for each material client or cohort:

  1. Start with gross invoiced fees for the period.
  2. Deduct credits, discounts, refunds, bad debts and fee write-offs to reach realised fees.
  3. Map all delivery effort, including preparation, administration, review, partner contact, rework and outsourced inputs.
  4. Apply a supportable employment-cost or capacity measure rather than relying only on external charge-out rates.
  5. Identify software, contractor and other client-specific costs.
  6. Separate ordinary delivery from exceptional catch-up work and genuine investment in a new relationship.

The result is an assessment tool, not a formal valuation. Compare periods and cohorts to find persistent leakage. Review both contribution and constrained capacity: a client may cover direct staff cost yet consume scarce partner-review hours that prevent the firm from accepting or completing better work.

Hypothetical example: a client pays the same fixed annual fee across two years. Recorded preparation time is stable, but manager review, correction of source records and unlogged partner calls have increased. The revenue schedule shows no deterioration; the scope-to-effort bridge shows that the buyer needs either a narrower service, better client responsibilities, improved workflow or a supported repricing plan.

Test whether remediation is credible

Do not simply add an assumed price increase to the acquisition model. Build a remediation register showing the affected clients, evidence, proposed action, timing, owner and downside if the action fails.

Ask:

  • Has the seller previously attempted to reset scope or price, and what happened?
  • Are extra services clearly distinguishable and capable of being quoted before work starts?
  • Can staff identify and escalate out-of-scope requests consistently?
  • Is poor client record quality causing repeat work, and can responsibilities be enforced?
  • Would repricing occur before or after clients are told about the acquisition?
  • How much attrition, delay and implementation cost is allowed in the downside case?
  • Does the forecast preserve sufficient review and supervision capacity?

The last question is not merely commercial. APES 320 identifies resources and engagement performance among the elements of quality management for firms providing non-assurance services (APESB). The TPB also says registered company and partnership tax practitioners must assess whether they have adequate financial, technological and human resources and enough registered individuals for competent services and supervision (TPB). A buyer should not model margin improvement that depends on removing work needed for competent delivery.

Translate findings into the acquisition decision

Summarise underpricing by client cohort, cause, responsible team and required action. Keep verified historical economics separate from buyer initiatives. If normalised earnings assume that the seller will complete repricing, obtain evidence of the communication and client response; if the buyer will act after completion, model it as a future initiative with execution and retention risk.

Material findings may affect maintainable earnings, staffing needs, working capital, transition priorities, price or transaction protections. They may also justify further file review or a decision not to proceed. Acquisition, accounting, legal, tax and valuation advisers should determine how the evidence affects financial adjustments and sale terms. Professional advisers should also review whether proposed scope changes, engagement updates and client communications meet applicable obligations.

Sources

Disclaimer

This article provides general information only. It does not constitute legal, tax, accounting, financial, credit, valuation or other professional advice. Circumstances differ. Obtain advice from appropriately qualified advisers before acting or entering a transaction.