A reader of the blog encouraged me to read Age of Indulgence by Ron Thomas and Chad Munson, both pen names for sake of anonymity, and offer my thoughts on the book. The book is a compilation of horror stories in which the client generally gets screwed by firms and firm employees that view the client as a piggy bank. After each set of stories, the authors interject their ideas for ways to mitigate these abuses.
While I agree that these are issues that need to be brought to light and that these types of abuses should not exist, I disagree with almost every recommendation that the authors make about controlling these abuses. The authors generally take the position that the client needs to be a more vigilant baby-sitter for the firm as a way to control their own audit costs or the firm needs to be a more vigilant baby-sitter of its employees.
In my opinion, the client would be better to get the firm to control its own costs by demanding an arrangement where the fees for the engagement are fixed, so long as the scope of the engagement does not change significantly from beginning to end of the project. If the contractor remodelling your kitchen finds asbestos, I doubt that you will expect the asbestos remediation to be within the scope of his initial price quote. If the auditor finds financial cancer, they should be able to amend the arrangement letter and ask for a higher price.
If your accounting firm can’t figure their numbers well enough to set a price on an engagement, how well do you think they understand your numbers?
The client and the audit firm also view the billable hour/cost plus expenses pricing model in an entirely different light. The client sees the costs figured from the budgeted hours and expected expenses as either a close proxy or upper limit to the actual expenses to be incurred. While the audit firm may see this as the baseline if everything goes very smoothly with nearly any inconvenience justifying an opportunity to bill more time. Thus the problem of selling time rather than solutions.
With regard to expenses, being able to pass these right along in the client billings gives serious problem about playing with OPM (other people’s money). If you want to stay at a $200/night hotel while you’re on an engagement, you should be able to do so, but it should be part of your cost structure that limits YOUR profit, not increased expenses for the client.
Overall, the book is good and brings up very relevant issues, but the authors miss the root of the problem and give you solutions for the symptoms without addressing the illness.