What are the major factors that should be considered before accepting the client?
Show 5- Discuss the main factors which should be considered by the External Auditor before accepting audit client 1) Discuss the factors an auditor should consider before accepting a company as an audit client. Answer: The auditor should investigate and consider the prospective client's standing in the business community, financial stability, management's integrity, and relations with its bankers, attorneys, and previous CPA firm. The auditor should also determine whether he or she possesses the required competence and independence to do the audit. 2) Discuss several reasons why an auditor may not wish to continue a relationship with an existing audit client. Answer: There are a number of reasons an auditor may choose not to continue a relationship with an existing client. Examples include: 1. Previous conflicts over accounting issues, scope of the audit, type of opinion, or fees. 2. Management integrity may be deemed to be insufficient. 3. Legal action initiated by either the auditor or client related to prior audit services. 4. The presence of excessive risk which could result in financial failure of the client or lawsuits against the audit firm. 3- Discuss and analyze the audit risks involved with accepting a new client. Explain how an auditor might determine client acceptance. ANS: The auditor incurs certain engagement risks whenever a client is accepted. These risks include that of the auditor's association with a failed client and the possibility of misstated financial statements on which the audit firm has issued an Your audit firm has been appointed to conduct a full scope of the financial statements covering a period of three months of Clever Audit Limited. Clever Limited needs the audit report for obtaining a bank loan. While verifying certain account heads you identify certain problems for which you are not provided satisfactory replies by the client. At the same time Clever limited approaches you to change the scope of the assignment from a full scope audit to a review assignment. They give you the reason that they have misunderstood the scope of assignment earlier. What course of action would you adopt in this situation? A request from the client for the auditor to change the engagement may result from a change in circumstances affecting the need for the service, a misunderstanding as to the nature of an audit or related services originally requested or a restriction on the scope of the engagement, whether imposed by the management or caused by the circumstances. A change in circumstances that affects the entity’s requirements or misunderstanding concerning nature of service originally requested would ordinarily be considered as reasonable basis for requesting a change in the engagement. However, a change would not be considered reasonable if it appeared that the change relates to information that is incorrect, incomplete or otherwise unsatisfactory. The auditor should also consider legal or contractual implications of the change. In view of above, it would not be appropriate to accept the change in the assignment as the reason for change seems to be lack of availability of audit evidences. Under what circumstances the auditor should not accept an audit engagement? Audit engagement should not be accepted under following circumstances:
Enumerate some contents of the audit engagement letter
List down the factors that are normally considered by an auditor before accepting a new audit? The auditor should consider that preconditions for the audit are present. Such matters include:
Is it necessary for an audit firm to issue engagement letter every year in case of recurring audit? What are the factors to be considered in this regard? Following factors are to be considered in sending engagement letter each year:
You have been offered to audit an entity where management has not made any decision regarding the applicable financial reporting framework. Explain the importance of financial reporting framework at the client acceptance level. Appropriate financial reporting framework is important because without such criteria management does not have an appropriate basis for preparation of financial statements and the auditor does not have a basis for forming an opinion. The auditor of a parent company is also the auditor of its subsidiary. List the factors that the auditor should take into account while deciding whether a separate engagement letter should be sent to the subsidiary. When the auditor of a parent entity is also the auditor of its subsidiary, the factors that influence the decision whether to send a separate engagement letter to the subsidiary include the following:
Your firm has been the auditor of Mujahid Limited (ML) for many years. Before the commencement of the current year’s audit ML has requested that some changes be made in the terms of engagement. Required (i) What are the circumstances which may lead to changes in the terms of engagement? (ii) Discuss the important points which should be considered before accepting the changes in the terms of engagement.
What are three things to consider when deciding whether to accept a new client?Assuming independence and requisite technical abilities, the pre- acceptance evaluation of a prospective audit engagement normally focuses on three factors: 1) personal integrity of the prospective client's management and principals, 2) presence of circumstances pointing towards unusual risks in the engagement or ...
What is client acceptance process?Employing strong client acceptance procedures — the process by which a prospective client is evaluated before undertaking any services. While client acceptance is no crystal ball, sound client acceptance procedures can help CPA firms identify potential problem clients before they cause trouble.
What factors should an auditor consider prior to accepting an engagement prior to accepting a client the auditor should?Prior to accepting a client, the auditor should investigate the client. The auditor should evaluate the client's standing in the business community, financial stability, and relations with its previous CPA firm.
What is client acceptance criteria?Acceptance criteria (AC) are the conditions that a software product must meet to be accepted by a user, a customer, or other systems. They are unique for each user story and define the feature behavior from the end-user's perspective.
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