Unit 1 – Requirement 1 Prepared by:

Policy 1: Firm Capability, Competence, Time and Resources

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.

The firm must evaluate whether the engagement can be completed with
professional competence, to undertake only those engagements for which the firm has
the capabilities, resources, and professional competence to complete, and determine, at
the end of specific periods or upon occurrence of certain events, whether the
relationship should be continued.

The firm must ensures that the audit team has the necessary technical skills and
knowledge of the industry to complete the engagement. In making assignments, the
nature and extent of supervision to be provided should also be taken into account.
Generally, the more able and experienced the personnel assigned to a particular
engagement, the less is the need for a direct supervision.

(Acceptance and Continuance of Client Relationships and Specific Engagements,

par. 27)

Policy 2: Firm Compliance with Legal and Relevant Ethical Requirements

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 can comply with legal and relevant ethical
requirements.

The firm evaluates the risk of providing services to significant clients or to other
clients for which the firm’s objectivity or the appearance of independence may be
impaired. They take appropriate safeguards, if necessary, and If safeguards cannot
reduce the threat to objectivity and independence to an acceptably low level, the firm
does not accept the engagement.

Consideration of whether the firm has the competence, capabilities, and

resources to undertake a new engagement from a new or an existing client involves
reviewing the specific requirements of the engagement and the existing partner and
staff profiles at all relevant levels, including whether:

 Firm personnel have knowledge of relevant industries or subject matters or the

ability to effectively gain the necessary knowledge;
  Firm personnel have experience with relevant regulatory or reporting
requirements or the ability to effectively gain the necessary competencies;
 The firm has sufficient personnel with the necessary competence and
capabilities;
 Specialists are available, if needed;
 Individuals meeting the criteria and eligibility requirements to perform an
engagement quality control review are available, when applicable; and
 The firm is able to complete the engagement within the reporting deadline.

The firm considers the timing of acceptance of the engagement and how that
affects the firm’s ability to perform all procedures necessary for the engagement.

Policy 3: Client Integrity

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 has considered the integrity of the client and does not
have information that would lead it to conclude that the client lacks integrity.

The firm considers the risk associated with providing professional services in
particular circumstances, involving evaluation of factors having an impact on the client
management integrity. Hence, it only accepts or continues engagements and client
relationships when it concludes that the risk is at an acceptable level.

Before the acceptance or continuance of any client relationships and specific

engagements, the firm obtains and evaluates relevant information as to matters
considering the integrity of a client, such as:

 The identity and business reputation of the client's principal owners, key
management, and those charged with governance.
 The nature of the client's operations, including its business practices.
 Information concerning the attitude of the client's principal owners, key
management, and those charged with governance toward such matters as
internal control or aggressive interpretation of accounting standards.
 Indications of an inappropriate limitation in the scope of the work.
 Indications that the client might be involved in money laundering or other criminal
activities.
 The reasons for the proposed appointment of the firm and non-reappointment of
the previous firm

Sources of information on such matters obtained by the firm may include the
following:
  Communications with existing or previous providers of professional accountancy
services to the client, in accordance with relevant ethical requirements, and
discussions with other third parties.
 Inquiry of other firm personnel or third parties, such as bankers, legal counsel,
and industry peers.
 Background searches of relevant databases.

Policy 4: Client Understanding

There should be establish policies and procedures for the acceptance and
continuance of client relationships and specific engagements, where the firm can
obtain an understanding with the client regarding the services to be performed, to
minimize the risk of misunderstandings regarding the nature, scope, and
limitations of the such services. (SQCS 8 par 29)

The firm must prepare a documentation regarding the understanding with the
client about the nature, scope, and limitations of the services to be performed and
review available financial information such as annual reports, interim financial
statements, income tax returns, news items in the financial press, and others relating to
the client.

The firm must consider whether the client has any circumstances that will require
special attention or that may represent unusual business or audit risks, such as litigation
or going concern problems. Matters pertaining to this step in accepting an engagement
include identifying the intended users of the audited financial statements, making a
preliminary assessment of the prospective client’s legal and financial stability, identifying
scope limitations, and evaluating the entity’s auditability

Policy 5: Communication with the Predecessor Auditor

There should be establish policies and procedures for the acceptance and
continuance of client relationships and specific engagements, where the firm
communicates with the predecessor auditor, if any.

Before accepting the engagement, the firm should take the initiative to
communicate, either orally or in writing, with the predecessor auditor, if any. The firm
should obtain client’s permission to communicate with the predecessor auditor. This is
necessary procedure because the code of ethics refrain an auditor from disclosing any
confidential client information without specific consent of the client, unless there is a
legal or professional duty to disclose.

Given the consent of the client, the predecessor auditor advises the firm whether
there are any professional reasons not to accept the engagement. If the client’s consent
is not given, the firm should consider the implications in deciding to accept the
engagement.

Communicate with the predecessor auditor about:

i. Any disagreement between the predecessor auditor and the client about
accounting principles and auditing procedures, or other similarly significant
matters.
ii. Any facts that might have a bearing on the integrity of the prospective
client’s management.
iii. Communications with those charged with governance regarding fraud,
non-compliance with laws and regulations, internal control-related matters,
and quality of accounting principles.
iv. The predecessor auditor’s understanding of the reasons for the change of
auditors.

Policy 6: Firm Independence

There should be establish policies and procedures for the acceptance and
continuance of client relationships and specific engagements, where the firm
determines if the audit team is independent of the client. (Sec 290 COE)

The firm must ensure that the firm’s independence is maintained, both in
appearance and in fact so that the opinions made by the audit team would always be
credible and reliable for the consummation of the public.

The members of the assurance team, the firm and network firms are required to
be independent of the audit client;

a) The firm should not have a material direct or indirect financial interest;
b) It is necessary to evaluate the independence of members of the assurance team
by investigating and gathering information about their immediate and close
family.
c) Certain other financial relationships with audit clients (e.g., loans, credit cards,
insurance products and brokerage accounts) are either prohibited or subject to
limitations.
d) The tools used to confirm independence in this policy includes family-tree data
relating to affiliates of listed audit clients and is updated by client-serving
engagement teams. The entity data includes notations that indicate
independence rules that apply to each entity, helping our people to determine the
types of services they can provide the client.

Policy 7: Firm Withdrawal

 There should be establish policies and procedures for the acceptance and
continuance of client relationships and specific engagements, where the firm obtains
information that would have caused it to decline the engagement had that
information been available earlier. (SQCS 8 par 30)

Such policies and procedures should include consideration of the following:

 The professional and legal responsibilities that apply to the circumstances,

including whether there is a requirement for the firm to report to regulatory
authorities.
 The possibility of withdrawing from the engagement or from both the engagement
and the client relationship.

The firm must consider whether there is a professional, regulatory, or legal

requirement to remain in place or to report to regulatory authorities the withdrawal from
the engagement, or from both the engagement and the client relationship, together with
the reasons for the withdrawal.