Assurance - Client Acceptance & Continuance

Question 1

Explain the process of acceptance & continuance of engagement

Answer 1

It is the process of determining whether to provide service to a new client or continue to provide service to an existing client
1. Identifying and assessing the engagement risk
2. Establishing the engagement precondition

Documentation is retained with an audit file of client acceptance

Question 2

What is the difference between acceptance and continuance risk

Answer 2

Acceptance risk must perform procedures for an acceptable perspective to assess the risk, continuance risk perform proceedings to determine the risk of audit impact on the client

Question 3

What are 3 factors in determining for the auditor to assess engagement risks?

Answer 3

1. Integrity of principal owner, key management & TCWG
2. Whether the engagement team is competent to perform the audit engagement
3. The firm engagement team can comply with relevant ethical requirements such as independence

Question 4

What are 4 questions to test the client’s integrity

Answer 4

1. What is the reputation of the client in the business community? What is the reputation of the client management
2. What is the client’s attitude toward risk? How do they manage risk?
3. Will the client be cooperative in providing the auditor with access to information
4. Does the client have an aggressive interpretation of accounting standards, what is the quality of internal control?

Question 5

Explain what are the engagement preconditions

Answer 5

Engagement preconditions - To confirm there is an understanding between the auditor & client management of the auditor engagement

Question 6

What are the procedures to gauge the integrity of prospective client

Answer 6

• Client acceptance decision predecessor auditor to determine whether management has exhibited irregular or illegal behavior that has caused concerns
• Continuing engagement, consider prior year experience with entity management
• Make inquiries of other officers in the firm that have experience with client/ entity

Question 7

How can auditors protect themselves from high-risk litigation from the client, how can the engagement team strengthen the core competencies

Answer 7

• Procedures to help auditors reduce risk are entities whose principal operation/ product is subject to a material lawsuit or investigation from authorities

To strengthen competencies, recruit audit staff to use second staff from other offices to ensure that audit staff have identified appropriate experts to assist in audit processes in order to ensure SAAE is obtain

Question 8

What are some independent consideration

Answer 8

• Auditors must evaluate whether any circumstances would comprise independent conclusion on compliance with the independence requirements that apply to the engagement
  Ex. Audit firm database, If independence is threatened, need to determine the extent to eliminate the threat

Question 9

Provide 3 procedures that help with the significant matter

Answer 9

Procedures to go through to identify the client’s situation include:
1. Inquiries of client
2. Review any evidence obtained during the prior year’s audit
3. Press coverage (press release) news articles

Question 10

What do auditors and management need to do for the precondition of the engagement

Answer 10

Auditors need to:
1. Consider nature of the entity such as profit and NFP
2. Determine the purpose of the F/S such as whether they are intended for limited #
3. Examine nature of the F/S such as whether they are complete set of F/S

Management need to:
1. Prepare F/S in accordance with FRF
2. Internal control of management determine if necessary to enable preparation of F/S free from material misstatement
3. Provide auditor with Access to all information of which management is aware of
- Additional information on auditor request
- Unrestricted access to persons within the entity

Question 11

What is an engagement letter and what does it include

Answer 11

The engagement letter is the purpose of laying out the term of the engagement. Audit F/S include:
1. Objective and scope of the audit F/S
2. Responsibilities of the auditor
3. Responsibilities of management
4. Identification of FRF for preparation of F/S
5. Reference to the expected form and content of any report issued by the auditor and a statement that there may be circumstances in which the report may differ from its expected

Use CSQC 1, CAS 210, CAS 220