Ch 5 Acceptance Procedure As Per CODE OF ETHICs

Question 1

What are factors to be considered before acceptance ?( Acceptance and continuance procedure.

Answer 1

These factors which ae to be considered before acceptance includes determining whether:
1. Whether audit firm has sufficient staff, technical competence, necessary time and resources to perform the engagement
2. Integrity of owners, directors and management of Client.
3. Whether firm and engagement team can comply with legal and ethical requirements ( particularly relating to independence )
4. Auditor also considers significant matters arose during previous engagements,
5. Preconditions of Audit are Present
if any threats are identified, they must be addressed by auditor and further procedures must be performed to reduce the threats.

Question 2

What are threat and Auditor’s Procedures at/before the time of acceptance?

Answer 2

• Acceptance of a new client may create:
  Self-interest threat to compliance with principle of integrity and professional behaviour because client may be involved in illegal activities and questionable financial reporting practices.
• Self-interest threat to compliance with the Professional Competence and Due Care if firm is not competent to perform the engagement.

Question 3

what are Auditor’s procedures after accepting client/ engagement?

Answer 3

1.Auditor should communicate its consent to client’s company before AGM
2. Auditor should ensure that removal of predecessor auditor, appointment of auditor is in accordance with the legal requirements ( e.g thrpughh minutes of AGM ). Appointment should be properly documented.
3. Auditor should prepare and submit engagement letter to the client.

Question 4

Write Procedures of Communication with Predecessor Auditor?

Answer 4

As part of acceptance procedures, every incoming auditor writes Professional Clearance Letter (or
NOC letter)
1. Obtain written permission from client to contact with predecessor auditor (due to confidentiality principle).
2. If client gives permission, write letter to predecessor auditor to identify any matters relevant to acceptance decision (eg. integrity of management, overdue fee,
disagreement, inappropriate scope limitation)
3. If client does not give permission, this will be a scope limitation before acceptance.Incoming auditor should not accept the engagement.
4. If predecessor auditor responds indicating some issues affecting acceptance decision,incoming auditor may still accept the engagement after applying necessary safeguards.
5. If predecessor auditor does not respond, proposed auditor should try to obtain relevant information from other sources (eg. through inquires of third parties or background investigation regarding senlor management or TCWG of client).

Question 5

How will Outgoing auditor respond to proposed auditor?

Answer 5

1. Obtain written permission from client to reply to incoming auditor (due to confidentiality principle )
2. If permission is given by the client, write as soon as possible to proposed auditor honestly stating the relevant facts.
3. If client does not give permission, inform proposed auditor about non permission. This will be scope limitation before acceptance. Incoming auditor should not accept the engagement.