This first step in an audit engagement of client
acceptance is very crucial where the practicing firm has to decide whether to
accept the new client relationship or in case of existing client a periodic
review whether to continue with the existing relationship. The decision to
accept or continue an audit engagement depends on the client evaluation and
ethical considerations.
As
per paragraph 26 of ISQC-1,
“The firm shall establish policies and procedures for the acceptance and
continuance of client relationships and specific engagements, designed to
provide the firm with reasonable assurance that it will only undertake or
continue relationships and engagements where the firm:
- Is competent to perform the
engagement and has the capabilities, including time and resources, to do
so;
- Can comply with relevant ethical
requirements; and
- Has considered the integrity of
the client”
If
the issues have been identified, and the firm decides to accept or continue the
client relationship or a specific engagement, the firm shall document how the
issues were resolved.
As
per paragraphs 12 and 13 of ISA-220
on Quality Control for an Audit of Financial Statements, the engagement partner
shall be satisfied that the firm’s policies and procedures were duly followed
in acceptance and continuation of client relationship and audit engagement and
shall determine that the conclusions reached in this regard are appropriate.
The
auditor shall be alert to and appropriately address the following threats while
accepting a new engagement or continuing an existing one:
- Self interest
- Self-review
- Familiarity
- Intimidation
- Advocacy
Practice
The
auditor is generally more careful about accepting the new client because of
lack of previous experience with the management and those charged with the
governance and knowledge of the business, transactions and associated risks
affecting the financial statements. While certain assessment procedures for
both the prospective and existing clients would be common, however, they may
assume additional importance in case of a new client.
