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    Old Engagement and New Engagement

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    Mohammad Monirujjaman
    This document discusses the procedures an audit firm should follow when accepting new clients or engagements, including client acceptance, engagement acceptance, establishing audit preconditions, and agreeing terms. It outlines key issues like understanding the client, industry risks, management competence, and financial reporting frameworks. When offered a new audit role, firms should get permission to contact the prior auditor, check independence, and confirm preconditions. The acceptance process may involve a tender where firms provide proposals addressing client needs, fees, audit approach, and qualifications. An engagement letter is then issued to the client confirming terms.

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    © All Rights Reserved
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    Old Engagement and New Engagement

    Uploaded by

    Mohammad Monirujjaman
    10 views3 pages
    This document discusses the procedures an audit firm should follow when accepting new clients or engagements, including client acceptance, engagement acceptance, establishing audit preconditions, and agreeing terms. It outlines key issues like understanding the client, industry risks, management competence, and financial reporting frameworks. When offered a new audit role, firms should get permission to contact the prior auditor, check independence, and confirm preconditions. The acceptance process may involve a tender where firms provide proposals addressing client needs, fees, audit approach, and qualifications. An engagement letter is then issued to the client confirming terms.

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    ACCA

    Original Title

    Old engagement and new engagement

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    This document discusses the procedures an audit firm should follow when accepting new clients or engagements, including client acceptance, engagement acceptance, establishing audit preconditions, and agreeing terms. It outlines key issues like understanding the client, industry risks, management competence, and financial reporting frameworks. When offered a new audit role, firms should get permission to contact the prior auditor, check independence, and confirm preconditions. The acceptance process may involve a tender where firms provide proposals addressing client needs, fees, audit approach, and qualifications. An engagement letter is then issued to the client confirming terms.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    10 views3 pages

    Old Engagement and New Engagement

    Uploaded by

    Mohammad Monirujjaman
    This document discusses the procedures an audit firm should follow when accepting new clients or engagements, including client acceptance, engagement acceptance, establishing audit preconditions, and agreeing terms. It outlines key issues like understanding the client, industry risks, management competence, and financial reporting frameworks. When offered a new audit role, firms should get permission to contact the prior auditor, check independence, and confirm preconditions. The acceptance process may involve a tender where firms provide proposals addressing client needs, fees, audit approach, and qualifications. An engagement letter is then issued to the client confirming terms.

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    © All Rights Reserved
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    Download as docx, pdf, or txt
    of 3

    Syllabus C3: Professional appointments

    Syllabus C3a) Explain the matters to be considered and the procedures that an audit
    firm/professional accountant should carry out before accepting a specified new client/
    engagement or continuing with an existing engagement, including:
    . i) client acceptance
    . ii) engagement acceptance
    . iii) establish whether the preconditions for an audit are present
    . iv) agreeing the terms of engagement.
    Syllabus C3b) Recognise the key issues that underlie the agreement of the scope and
    terms of an engagement with a client.
    Accepting a new engagement
    Auditors should screen clients to ensure they are not high risk
    The risk to the auditor is ‘reputation risk’ i.e. that they will be associated with a poorly
    regarded client.
    An auditor is required under ISA 315 to gain an understanding of their client.
    Auditors should screen clients to ensure they are not high risk
    Questions to ask will be:
    1. Is the client involved in any fraudulent/illegal activities?
    2. What is the nature of the industry in which they are involved – is it depressed?
    3. Has the client had a history of changing auditor regularly or had qualified audit
    reports
    in the past?
    4. Do client directors understand their role and are they able to carry it out?
    5. Are management trustworthy?
    !66 aCOWtancy.com
    Other Areas to help gain an understanding are:
    • The market and its competition
    • Legislation and regulation
    • Regulatory framework
    • Ownership of the entity
    • Nature of products/services and markets
    • Location of production facilities and factories
    • Key customers and suppliers
    • Capital investment activities
    • Accounting policies and industry specific guidance
    • Financing structure
    • Significant changes in the entity on prior year
    Auditors may advertise their services.
    However, adverts should not bring the ACCA into disrepute, discredit the services of
    others, be misleading, or fall short of regulatory or legislative requirements.
    Procedures when offered a role
    These include:
    1. Get permission to contact the outgoing auditor
    2. Contact the old auditor, asking for any reasons why we should not accept
    appointment
    3. Check we are sufficiently Independent
    4. Check we have the competence & resources to do it
    Pre-Conditions for an Audit
    Auditors should only accept a new audit engagement when it has been confirmed that
    the
    preconditions for an audit are present..
    !67 aCOWtancy.com
    • Is the FR framework acceptable?
    Consider the entity & the purpose of the FS
    Perhaps, also, laws say which FR framework should be used
    • Do Management accept their responsibilities?
    For preparing FS
    For internal controls
    For giving the auditor all relevant information they request
    If the preconditions for an audit are not present..
    The auditor shall not accept the proposed audit engagement
    !68 aCOWtancy.com
    New engagement process
    Tendering for audit work
    Things to consider...
    1. Fee
    A fee will be quoted for a piece of audit work before it is carried out under a tendering
    process
    The auditor must not lowball as we have seen above, nor may they make unrealistic
    claims or promises to win the contract
    2. Get Information
    The potential client will inform the auditor of what is expected, the timetable, future
    plans of the company and any problems with current auditor
    3. Proposal
    The auditor may then draw up a proposal containing:
    • Proposed audit fee
    • Nature, purpose and legal requirements of an audit.
    • Assessment of the requirements of the client.
    • How audit firm proposes to satisfy requirements
    • Any assumptions made.
    • Proposed audit methodology.
    • Outline of audit firm and personnel
    • Ability of firm to perform the audit
    Pre-conditions
    Is the Financial framework used acceptable? (Consider the type of business and
    relevant
    laws and the uses of the financial statements)
    Client Decision
    !69 aCOWtancy.com
    The client will decide on the basis of clarity, relevance, professionalism, reputation,
    timeliness of delivery and originality which firm will conduct the audit
    Engagement letter
    An engagement letter is a letter from the auditor to the client indicating
    various matters concerning the engagement
    The engagement letter is sent before the audit to the client confirming their acceptance
    of
    the audit.
    Contents
    ISA 210 Terms of Engagement gives guidance as to their content, but as a rule most
    will
    include:
    • The Objective of the audit.
    • Managements’ responsibility for the Financial Statements.
    • The scope of the audit including reference to legislation and professional standards.
    • The form of report to be used
    • Use of the work of internal audit
    • Reference to inherent limitations of an audit
    • Access to information to be allowed
    • Deadlines and confidentiality
    • Expectations of management representations
    • Fees
    • Complaints procedures
    !70 aCOWtancy.com

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