Question

Client acceptance is an important part of the pre-engagement planning process for a CPA. For an existing client, this process often involves reviewing the firm's financial performance on the previous year's engagement, debriefing with the prior year team regarding any issues working with the client, reviewing public information about the company's activities during the year, and considering other factors to determine the relative risk to the firm to perform services for that client for another year. For a new client to a firm, the client acceptance process should be a more robust evaluation as a new client brings a relatively unknown level of risk to the firm.

Required: If you were the audit partner in charge of the new client acceptance process, what would be the three most important pieces of information that you would want to review about that company before engaging to perform an audit for the new client?

Answer 1

1) Check previous auditors report or internal audit report to determine various risks associated with the new client and acceptability of financial reporting framework.

2) Check companies financial position by reviewing financial statements in order to verify if there are any crucial items which will play an important role in designing audit procedurs and checking the availability of technical experts.

3) Whether the auditor is imposed with any limitation on the scope of the auditor’s work in the terms of a proposed audit engagement, the auditor should decline the audit engagement if the limitation could result in the auditor having to disclaim the opinion on the financial statements.