Client Acceptance

Question 1

Considerations in determining whether the acceptance or continuance is appropriate

Answer 1

• integrity of key owners, management, those charged with governance
• Engagement team’s capacity to perform audit (competence, time, and resources)
• engagement team and client’s ability to comply with relevant ethical requirements
• significant matters during current or previous audit
• Independence

Question 2

Factors that the practitioner should consider in assessing a client’s integrity

Answer 2

• What is the reputation of the client in the business community? What is the reputation of the client’s management, directors, and key stakeholders?
• What is the client’s attitude toward risk? How does the client manage risk?
• Will the client be co-operative in providing the practitioner with access to information?
• What is the client’s attitude toward the audit fee?
• In the case of a client acceptance decision, why does the potential client want to switch audit firms?

Question 3

Procedures to gauge the integrity of a prospective or existing client

Answer 3

• In the case of a client acceptance decision, communicate with the previous auditor, where applicable.
• Communicate with independent third parties, such as lawyers and creditors.
• Perform a background check of the client.
• Obtain and scan financial statements from prior periods.

Question 4

Independence threats

Answer 4

Familiarity threat: a close relationship exists between the practitioner and client, creating environment where it is difficult for practitioner to behave with professional skepticism.

Self-interest threat: the practitioner (or his or her firm) has a financial interest in the client

Self-review threat: the practitioner is in the position of having to form an opinion on his or her own work

Advocacy threat: the practitioner (or his or her firm) is perceived to promote, or actually promotes, the position of the client

Intimidation threat: the client intimidates the practitioner (or his or her firm)