Before you hire a CPA firm in Texas: check the license, the peer review and the fit

Three checks that take fifteen minutes

Start with the Texas State Board of Public Accountancy's free online license lookup, which lets you confirm that both the individual CPA and the firm hold current Texas licenses and shows disciplinary actions. If the firm will perform an audit, review or compilation for you, ask for its most recent peer review report, because the Board states that a firm must be peer reviewed if it does that work. Then spend twenty minutes in conversation to judge fit: who will do your work, what experience they have with organizations like yours, and how reachable they are.

I practice in audit and assurance at Malnory, McNeal & Company, and I would rather a prospective client check us than take our word for anything. Owners and nonprofit boards who do these checks tend to hire well and stay with the firm for years, which is exactly what this kind of work needs. Here is how to do each step and what to listen for.

Looking up the license yourself

In Texas, CPA firms are licensed and regulated by the Texas State Board of Public Accountancy. Its license lookup has two searches: one for individual CPAs, which confirms whether a license is current and active and shows any disciplinary actions or enforcement markers, and one for firms, which lets the public verify the status of accounting firms licensed in Texas. You can search by license number or by name.

Do both searches. A firm can employ licensed CPAs and still have a firm license issue, and an individual can hold a license while working for an unlicensed practice. If the person you are talking to says they are a CPA, their name should appear. If they use other letters after their name, ask what each one means; some are degrees or specialist credentials, and only the CPA license is issued by the state board.

If a search comes back empty, do not assume the worst right away. Firms sometimes operate under a trade name that differs from the legal name on the license, and individuals may be listed under a full first name rather than the name they use day to day. Ask the firm for its license number and the license numbers of the CPAs on your engagement, then search by number. A firm that is properly licensed will give you those numbers without hesitation.

• Search the firm by its exact legal name, then try a shorter version if nothing appears.
• Search the CPA who will lead your engagement, not only the firm's founder.
• Read any disciplinary history and ask the firm about it directly.
• Note the license status and keep a screenshot with your hiring notes.

What peer review is, and why it matters for assurance work

Peer review is the profession's quality check on accounting and auditing work. The Texas board describes its program as a way to monitor CPAs' compliance with accounting, auditing and other attestation standards, and it states that a firm must be peer reviewed if it performs audits, reviews or compilations. In practice, another CPA firm examines a sample of the reviewed firm's engagements and its quality control, then issues a report. Depending on the findings, the program can lead to education, remediation or disciplinary action.

If your bank, grantor or buyer has asked for financial statements with any level of assurance, ask the firm for its most recent peer review report and read it. Ask whether the firm received a letter of comments or deficiencies and what it changed. A firm that does only tax returns may claim an exemption, which is not a warning sign, but it also means that firm is not the one to audit your statements. Malnory, McNeal & Company publishes its peer review letters on its website, with dates going back to 2004, so anyone can read them before calling us.

The independence question most owners never ask

If you need an audit or review, the firm must be independent of you. That means the firm cannot be in the position of auditing its own work or making management decisions for you. It is one reason a bookkeeper cannot audit the books they keep, and why an audit firm has to think carefully before taking on certain other services for the same client.

Ask any firm you are considering how it handles independence when it also provides tax, payroll or bookkeeping help. The answer should be specific, not a reassurance. At our firm, we explain where the line falls for your situation before the engagement letter is signed. If you are not sure which level of assurance you need in the first place, this explanation of audits, reviews and compilations is the place to start.

Questions for the first meeting

Once the license and peer review check out, the first meeting is about fit. These questions tell you more than any brochure. Ask them of every firm you consider, including us, and pay attention to how specific the answers are.

• Who will lead my engagement, and will that person answer my calls between January and April?
• How many organizations like mine do you work with, and what did their first year look like?
• What do you need from me before you can quote, and what is excluded from the fee?
• How do we exchange documents, and how is my data protected?
• If the IRS sends a letter, can you represent me, and what does that involve?
• What happens if my needs grow, from a review to an audit or from tax preparation to year-round planning?

Red flags worth walking away from

A firm that cannot or will not tell you who will do the work is a concern, because assurance and tax relationships repeat every year and continuity matters. So is a quote given before anyone has seen your records. Be cautious with a firm that promises a refund amount or a particular audit outcome; no honest CPA can promise either.

Watch for vagueness about independence, reluctance to share a peer review report for assurance work, and pressure to sign quickly. Also notice how the firm handles your first question. If it takes a week to get a reply while the firm is trying to win your business, expect longer waits after it has it.

Representation is another area to probe. If an IRS notice ever arrives, a CPA can be authorized to deal with the IRS on your behalf, and how a firm describes that process tells you whether it has done it. What happens during an IRS audit of a small business covers the steps so you know what good help looks like.

Matching the size of the firm to the job

Bigger is not automatically better, and smaller is not automatically more personal. The question is whether the firm has the specific experience you need and the capacity to deliver it on your timeline. A nonprofit that needs a single audit under federal grant rules needs a firm that does that work regularly. A growing company that expects a lender to require reviewed statements next year needs a firm that can do the review and keep the books, payroll and tax return consistent with it.

Our firm's description of itself is large enough to meet all your needs and small enough to know your name. We have about twenty-five people across offices in Dallas and Paris, Texas, and our partners' experience includes audits of businesses, nonprofits, school districts, cities, counties and benefit plans. Whatever firm you choose, ask for the equivalent picture: how many people, which offices, and what kinds of engagements fill their year.

Nonprofits and boards: a few extra checks

Nonprofit boards have particular reasons to be careful, because the audit report goes to grantors and donors as well as the board. Ask whether the firm audits organizations of similar size and funding mix, whether it prepares Forms 990 and how it coordinates that with the audit, and whether it has experience with federal grant compliance if you receive federal money. Ask the audit committee or treasurer to be in the first meeting, since they will oversee the relationship.

If you are not yet sure your organization needs an audit at all, settle that first; whether a nonprofit needs an audit explains the triggers. A firm that tells you a review would satisfy your current requirements is giving you a good sign about how it will treat you later.

What happens after you choose

A well-run engagement starts with an engagement letter that states the service, the period covered, the timeline and the fee, so nothing is left to memory. Then comes a request list of documents, which at our firm goes through a secure client portal, and a planning conversation about your business or organization, your systems and any deadlines from your lender or grantor.

The first year is also when you learn whether your choice was right. Notice whether questions come in organized batches or scattered emails, whether deadlines are met, and whether the firm explains its findings in language your team and board can use. At the end of an audit, a good firm presents the results and points out any weaknesses it saw in internal controls, with practical recommendations. If that conversation is useful, you have found a firm worth keeping.

If you are in the Dallas area and want to talk through whether we are the right fit, bring the request that started this, your most recent financial statements or tax return, and your fiscal year-end. We will tell you plainly what level of service the situation calls for and whether our firm is the right one to provide it.

Questions people ask me