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a) Describe the matters to consider within your firm and the other procedures that must be undertaken before accepting the appointment as auditor to a new...

a) Describe the matters to consider within your firm and the other procedures that must be
undertaken before accepting the appointment as auditor to a new client.
b) Explain why it would be inappropriate to commence the audit before consideration of
the matters and the procedures referred to in (a) above have been completed.

Answers

Wilfred
(a) Internal matters and other procedures before appointment
Before accepting appointment the firm should ensure that:
•• It has the necessary staff with appropriate competencies to complete the audit (this
seems likely given that the firm has other clients in this sector)
•• The staff are available at what is a busy time of year for the firm (it may be possible that
all of the staff with the necessary competencies are otherwise occupied)
•• The firm is independent of client. It is unlikely that there will be any issues concerning
shareholdings in the client (because it is owned and run by two entrepreneurs) however,
there may be staff or partners who are related to the client or are otherwise connected
with it.
•• There are no conflicts of interest that cannot be properly managed. Conflicts of interest
may exist because the firm has other clients in this sector.
-Other procedures
The firm should:
•• Seek the directors’ permission to communicate with the company accountant about the
nature of the ‘disagreement’ and the directors should authorize the accountant to cooperate
with the firm.
•• Seek the directors’ permission to communicate with the incumbent auditors. If permission
is refused, the appointment should not be accepted.
•• Ask the client to write to the incumbent auditors notifying them of the change and giving
them permission to communicate with the firm (if client refuses to give permission to the
incumbent auditors the appointment should not be accepted)
•• Communicate with the incumbent auditors (preferably in writing) requesting all the
information which ought to be made available to enable the firm to decide whether or
not to accept the appointment (if there are no such matters, the incumbent auditors
should inform the firm of this)
•• Seek appropriate transfer information (such as a copy of the last set of accounts and a
detailed trial balance reconciled to the accounts).
•• Indicate a likely fee (or the basis on which fees are calculated) to client, ensure that this
is acceptable and that the client is able to pay.
•• Ensure that the incumbent auditor has properly resigned, been dismissed or has not
sought re-appointment in accordance with legal requirements.

(b) Starting the audit
It is inappropriate to start the audit before the procedures referred to above have been
completed because:
Without the staff with appropriate competencies, the firm will be in breach of the rules (and
may be found negligent if things were to go wrong).
Without complying with the requirements relating to independence and conflicts of interest,
the firm will not only be in breach of the rules, but will lack objectivity and may find that the
client (or other party) objects to the appointment to another client in the same sector.
Without performing appropriate procedures the firm will be unable to form an opinion on the
integrity of the client. It may find itself associated with an entity engaging in doubtful or even
illegal activities (taking account of the disagreement over disclosures).
Without agreeing a fee it is almost inevitable that misunderstandings or disagreements will
arise.
Without communicating with the accountant and the incumbent auditor, it is quite possible
that disagreements over disclosures will arise, similar to those that have arisen in the past
Without ensuring that the incumbent auditor is no longer in place, it will be inappropriate for
the firm to seek appointment.
Wilfykil answered the question on April 12, 2019 at 08:28

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