Pre-planning: Client acceptance

Meaning: Before accepting an audit, the audit firm evaluates whether it should work with the client and whether it can perform the audit properly.

The main considerations include management’s integrity, compliance with ethical requirements, and the firm’s competence, time and resources. Malaysian Institute of Accountants (MIA)

Consideration	Explanation	Practical example
Management’s integrity	Consider whether management is honest and willing to provide reliable information.	A director asks the auditor to ignore unrecorded sales. This raises serious concerns about accepting the client.
Independence	Identify relationships or interests that could compromise the auditor’s objectivity.	The proposed audit partner owns shares in the client. The independence issue must be resolved before proceeding.
Competence	Assess whether the team has the knowledge and skills needed.	An audit of an insurance company requires knowledge of specialised transactions and estimates.
Time and resources	Determine whether sufficient staff and time are available to complete a quality audit.	A large company requests completion within three days, but the firm has only two available staff.
Reasons for changing auditors	Find out whether the change involves disagreements or other professional concerns.	The previous auditor questioned unusually high inventory values, and management immediately sought another auditor.
Audit preconditions	Establish whether the reporting framework is acceptable and management acknowledges its responsibilities, including providing access to information.	Management agrees to prepare the financial statements and provide records, explanations and access to relevant employees.

Management’s acceptance of these responsibilities forms part of the basis for accepting the audit under ISA 210. www.icaew.com

Student takeaway: Client acceptance asks, “Should we accept this client, and can we audit it properly?”