There Are Six Identifiable Steps Associated with Client Acceptance and Retention

question 32

Short Answer

There are six identifiable steps associated with client acceptance and retention:
A.evaluating integrity of management
B.identifying special circumstances and unusual risks
C.assessing competence to perform audit
D.evaluating independence
E.making the decision to accept or decline the audit
F.preparing engagement letter
REQUIRED: For each of the following firm policies or actions taken during the accept/reject phase of the audit, indicate, using the above letters, the step to which it relates.
1.National office approval is required for any new audit engagement that cannot
commence until after the balance sheet data.
2.Obtain the client's approval to communicate with the predecessor auditor.
3.For new clients, determine that acceptance would not result in any conflicts of
interest with that of other clients.
4.Written contracts are required on all professional engagements.
5.Plan to review and test all work performed for the audit team by client personnel.
6.Identify the intended users of the audited financial statements.
7.Audit teams must contain a partner, at least one manager and at least one senior.
8.Formally document the nature of the engagement and the auditor's
responsibilities.
9.Assess the prospective client's legal and financial stability.
10.Before accepting a new engagement, assess the probable impact on the firm's
overall work schedule and ability to service existing clients.
11.For potential new SEC clients, review the report filed with the SEC concerning
change in auditors.
12.Assess the general condition and availability of the more important accounting
records.
13.Circulate the name of all prospective clients to the professional staff to identify
any prohibited financial or business relationships.
14.Consider the need for the use of a specialist on the engagement.
15.For continuing clients, all top management changes require partner-in-charge
review.

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Definitions:

Operating Procedures

Established methods and protocols designed to carry out operations consistently and effectively within an organization.

Employee Manuals

Documentation provided to employees by an employer outlining job duties, workplace policies, and rights and responsibilities of the workforce.

Rules

Indicate what is and what is not acceptable behaviour and often specify the outcome of breaking them.

Specific Situations

Particular instances or events that are distinct and defined by unique circumstances.