Client loyalty: play the loyalty card

There are many benefits to the audit firm of having loyal and long-term
clients. Loyal clients can be more profitable since the cost of maintaining a
relationship generally decreases over time. So it is more cost-effective to
invest in relationships with current clients than to constantly look for new

We wanted to find out what keeps stock exchange companies committed and loyal
to their auditors. To do this, we asked over 100 FTSE 250 executives including
CEOs, CFOs, chief accountants and financial controllers about their relationship
with their auditor.

It is clear that individual relationships between the audit partners and
client executives are important in maintaining the relationship at a firm level.
High turnover of audit engagement staff, change of audit partner and changes to
the client’s top management can lead to a loss of commitment, resulting in stock
exchange companies considering a change of auditor. This may be prevented by
developing a strong relationship with the client at the firm level. Two factors
appear to be influential in encouraging clients to maintain the relationship:
developing good personal relations and sharing knowledge.

Knowledge gained by the client through the audit relationship can act as a
bond to keep the client with the auditor. Our study shows that executives
consider knowledge to be a positive factor in strengthening their commitment to
the auditor. Good personal relations are also an important part of building an
auditor-client relationship. They make the daily interactions enjoyable for
those involved. Our findings reveal that good personal relationships also play a
large part in maintaining the executives’ commitment to the audit firm.

The transfer of knowledge and good personal relations enhance positive
feelings towards the audit firm. This can lead to clients demonstrating their
loyalty towards the audit firm by continuing with the audit engagement and
recommending the auditor to others.

The question begs, what should auditors do to maintain committed and loyal
relationships with their clients? Firstly, the audit partner and staff need to
take advantage of both formal and informal situations to pass on knowledge which
is valuable to the client.

Apart from formal transfers of knowledge during the audit such as the
management letter and written responses to clients’ technical questions, the
auditor can add value both within and outside the audit, for example, through
inviting the client to an appropriate seminar or sending a relevant publication.
Audit staff need to be sensitive to a client’s knowledge requirements and
proactively seek potential opportunities for knowledge-sharing.

Secondly, personal relationships can be built during the audit at all levels.
However, there are also opportunities outside the audit, particularly at
executive level, whether at formal

firm-sponsored networking events or over a working lunch. Although membership
of clubs and non-executive boards has traditionally been used for networking,
nowadays a growing number of audit firms have a policy to encourage diversity in
the workplace. This opens up new possibilities for targeted business and leisure
networking activities such as for women or gay people in business. It is vital
that professional staff realise that it is not enough to be a technical expert.

Finally, it is important that the client sees the relationship as being
ultimately with the firm since there are restrictions in place on the length of
service by an audit partner and senior audit staff on a listed company’s audit
engagement (APB Ethical Standard 3). Benefits from relationships developed among
individuals will be lost following the rotation of personnel as the client is
not loyal or committed to the audit firm. So it is important the individuals are
seen to represent the firm and the firm is seen to be in charge of the

The effective management of client relationships can have a big impact on
client retention and consequently audit firm profitability. It is worth
investing in developing partners and staff in client-facing roles through
appropriate training in interpersonal skills, networking and key account
management. These skills should be reflected in individual performance
objectives and appraisals. A loyal client base can be a real asset to an audit
firm and it is in its best interest to invest in developing and maintaining
long-term client relationships.

Dr Sven Kuenzel and Ewa Krolikowska
are senior lecturers at the Business School at the University of Greenwich

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