This document is a memorandum for evaluating whether to accept a prospective client for audit services. It outlines areas to consider, including:
1) Background information on the client such as industry, management reputation, financial status, and reasons for changing auditors.
2) Results of inquiries with third parties about the client.
3) Potential conflicts of interest or independence issues that could impair objectivity.
4) An initial risk assessment of areas of concern for the client.
5) Results of inquiries with the predecessor auditor.
The memorandum is used to document the firm's evaluation of whether it can accept the engagement while maintaining independence and managing risks. A decision will be made on whether to accept
This document is a memorandum for evaluating whether to accept a prospective client for audit services. It outlines areas to consider, including:
1) Background information on the client such as industry, management reputation, financial status, and reasons for changing auditors.
2) Results of inquiries with third parties about the client.
3) Potential conflicts of interest or independence issues that could impair objectivity.
4) An initial risk assessment of areas of concern for the client.
5) Results of inquiries with the predecessor auditor.
The memorandum is used to document the firm's evaluation of whether it can accept the engagement while maintaining independence and managing risks. A decision will be made on whether to accept
Original Title
1- Prospective Client Acceptance or Existing Client
This document is a memorandum for evaluating whether to accept a prospective client for audit services. It outlines areas to consider, including:
1) Background information on the client such as industry, management reputation, financial status, and reasons for changing auditors.
2) Results of inquiries with third parties about the client.
3) Potential conflicts of interest or independence issues that could impair objectivity.
4) An initial risk assessment of areas of concern for the client.
5) Results of inquiries with the predecessor auditor.
The memorandum is used to document the firm's evaluation of whether it can accept the engagement while maintaining independence and managing risks. A decision will be made on whether to accept
This document is a memorandum for evaluating whether to accept a prospective client for audit services. It outlines areas to consider, including:
1) Background information on the client such as industry, management reputation, financial status, and reasons for changing auditors.
2) Results of inquiries with third parties about the client.
3) Potential conflicts of interest or independence issues that could impair objectivity.
4) An initial risk assessment of areas of concern for the client.
5) Results of inquiries with the predecessor auditor.
The memorandum is used to document the firm's evaluation of whether it can accept the engagement while maintaining independence and managing risks. A decision will be made on whether to accept
We are generally more careful about accepting the new client because of lack of previous experience with the management and those charged with the governance and knowledge of the business, transactions and associated risks affecting the financial statements.
While certain assessment procedures for both the prospective and existing clients would be common, however, they may assume additional importance in case of a new client.
The auditor also needs to communicate with the predecessor auditor.
I. Prospective Client Acceptance Memorandum
WP Ref.: Prepared by: Approved by: Date If Accepted: Next Review Due in year Client:
This memorandum should be filled and signed before accepting all new audit engagement.
i. Prospective client identity and source (consider following questions)
Whether the client is one of the following:-
a) Listed Entity b) Non listed entities which are financials institutions, Insurance, BFCs and DFIs. c) Economically Significant Companies (ESC) as defined under the prevalent laws or standards. d) Others (specify).
What has been auditor’s experience with the client or member of the same group? Has the work been referred by a long-standing professional contact? What are the significant risks associated with accepting the client? _____________________________________________________________________ _____________________________________________________________________ _____________________________________________________________________ _____________________________________________________________________
ii. Background information on the business (consider following questions)
What is known about the prospective business client?
What is the business reputation of the prospective client, its owners/ those charged with the governance, and its management? How capable is/are the management/those charged with the governance? Review qualifications and business experience. What is known about the integrity of the principal owners/those charged with the governance and management? Is there a dominant Chief Executive? Whether the auditor can meet with the Audit Committee freely and without the Executives present? What is known about entities bankers and lawyers? What is the financial status of the prospective client (particularly liquidity and viability)? Whether the management has a significant personal financial interest in the financial result? What is the integrity of those with significant influence over financial reporting (including fraudulent acts, non-bias in producing estimates, earnings management)? What is known about the industry in which the prospective client operates and the risks it presents? What reasons are given for the change of auditors and why our firm was selected? Whether the audit firm is competent and capable of handling the audit of the prospective client? Whether there would be need of an expert? Are there any concerns over the resources available within the firm to meet any identified need for experts? In case of group audit whether the engagement team is capable of acting as group auditors? Is there any concern that the group engagement team will not be able to gain sufficient appropriate audit evidence in relation to the consolidation process and the financial information of the components on which to base the group audit opinion? Is an Engagement Quality Control Reviewer (EQCR) required? _____________________________________________________________________ _____________________________________________________________________ _____________________________________________________________________ _____________________________________________________________________
iv. Auditor’s association with the prospective client (consider followingquestions)
Whether the preconditions for an audit are present, that is, the use by management of an acceptable financial reporting framework in the preparation of the financial statements and the agreement of management or those charged with governance to the premise on which an audit is conducted. Whether any limitation of scope is likely that would result in a disclaimer of opinion? What is the need to accept the audit even where the limitation on scope is or likely to be imposed by the management? Are there any relationships that may impair auditor’s objectivity or ability to meet any relevant independence requirements? Are there any potential conflict of interest affecting auditor’s ability to accept the engagement? For example providing audit and accountancy services to the same client. If there is a conflict of interest whether the interest conflicting with audit removed or safeguards available that reduces the risk to an acceptable level? Consider that no conflict of interest arise in respect of services being provided as a result of accepting audit of a listed company in view of listing regulations and KICPAA Code of Ethics. Have any relevant statutory or other regulatory provision been identified, including any implications on the auditor’s ability to act for the client?
1. Conflicts of interest
Enter details of issues that might lead to potential conflict of interest.
Enter details of the skill and experience the auditor has that makes it a suitable for hisclient. ________________________________________________________________ __________________________________________________________________ ________________________________________________________________ ________________________________________________________________
3. Fee recovery
Enter details of estimated fees, and review that an acceptable level of recovery of audit cost is expected. ________________________________________________________________ __________________________________________________________________ ________________________________________________________________ ________________________________________________________________
4. Other services
Comment on the potential for providing other services to the client and suggest actions for taking advantage of these. ________________________________________________________________ __________________________________________________________________ ________________________________________________________________ ________________________________________________________________
V. Initial assessment of risk associated with the prospective client
Specify the areas of concern that the client presents and explain how the risk will be managed. _____________________________________________________________________ _____________________________________________________________________ _____________________________________________________________________
VI. Result of enquiries with predecessor auditor
Document the results of enquiries with predecessor auditor and comment on the same. _____________________________________________________________________ _____________________________________________________________________ ______________________________________________________________________ _____________________________________________________________________ vii. Independence Factors
Consider all factors that could impair the firm's or network's independence for this engagement including IESBA independence standards and other applicable independence rules. Determine if any of the following challenges are present:
Proposed or prospective services
Firm financial or business relationships with the client Ex-firm staff working for the client in a position of influence Firm professionals who were formerly employed by the client with involvement in the audit engagement Audit team's and other covered persons' family members employed by the client Long association of a senior team member with the client
Viii. Other
Enter details of any other areas of concern or issues for consideration.
For example
Whether the firm has previously decline to perform audit services for this client if so give reasons and state mitigating factors for acceptance?
ix. Conclusion
On the basis of the above, we conclude that there is no reason to believe that the overall level of risk associated with __________________________ is sufficient to prevent the client from being accepted and there are no other circumstances of which we are aware associated with __________ _________________that suggest that the client should not be accepted.
OR
The circumstances identified from the above assessment have been disposed of as follows: 1. _____________________ 2. _____________________
Significant risks
Based on the assessment following significant risks are identified, which needs to be addressed while planning and performing the audit
1. ________________ 2. _________________
OR
On the basis of above and due to--------------------------the offer is declined.
Signed Proposed Engagement partner:____________________________Date:_______________
