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Auditing
Assurance
Services(M)
Semester 1 2019

UNIVERSITY OF ADELAIDE Semester 1: 2019 Lecture 4 (Part 2)

BUSINESS SCHOOL Client Acceptance
Dr Phil Saj PhD CPA
University of Adelaide 2

Client Acceptance and Continuance Client Acceptance and Continuance

“You only have one chance to get it right”
■ Require consideration of the following:
■ Key questions for the auditor:
■ Why does the entity want an audit? ■ Auditing standards
■ What is the applicable financial reporting ■ Code of ethics
framework? ■ Financial reporting requirements
■ If there is a change of auditor-why?
■ Legislation
■ Can the auditor perform the audit competently?
■ Can the auditor meet the independence and ■ Client characteristics
other ethical requirements? ■ Auditor’s interests, resources and quality
■ Does the auditor wish to be associated with the controls.
entity?
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Auditing Standards: Auditing Standards:

ASA 210 Agreeing the Terms of Audit Engagement
ASA 210 Agreeing the Terms of Audit Engagement
■ ASA 210.3
■ Preconditions for the audit ■ ASA 210.13
■ Confirm common understanding between auditor ■ Recurring audits
and client
■ ASA 210.9-10 ■ ASA 210 Appendix 1
■ Agree the terms of the engagement ■ Example of an Engagement Letter
■ Responsibilities of auditor
■ Responsibilities of management
■ Identification of the applicable financial reporting
framework
■ Reference to expected reports
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 Auditing Standards Code of Conduct: APES 110
ASA 102 Compliance with Ethical Requirements when
Performing Audits, Reviews and Other Assurance ■ APES 110.210 Professional Appointment
Engagements ■ APES 110.210.1.
■ Consider any threats to fundamental principles
■ APES 110.210.6 and 7
■ ASA 102.4 Objective
■ Application of due care
The objective of the auditor…is to comply with
■ APES 110.210.9
relevant ethical requirements, including those ■ Changes in professional appointment
pertaining to independence, relating to audits,
reviews and other assurance engagements. ■ APES 110.290 Auditor Independence

Auditing Standards Steps in Obtaining a New Client

ASA 220 Quality Control for an Audit of a Financial
Report and Other Historical Financial Information
■ ASA 220.12
■ Appropriate procedures to be followed
■ See paragraph A8
■ Integrity of owners, those charged with
governance and managers
■ Auditor competency
■ Compliance with ethical requirements
■ Consideration of significant issues
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■ Obtain ethical clearance from previous auditor
■ Establish whether the preconditions for an audit
are present
■ Evaluate integrity of management
■ Evaluate independence
■ Assess technical competence to perform the
audit
■ Decide to accept
■ Prepare engagement letter
■ Evaluate relationship on an ongoing basis

Obtain ethical clearance Establish Whether the Preconditions

For an Audit are Present
from previous auditor ASA 210.6
APES110 S210.9 and S210
■ Use by management of an acceptable financial
■ Need to consider if there are any reasons for reporting framework.
not accepting the engagement
■ Acknowledgement by management that it
■ Request the prospective client’s permission to understands its responsibilities regarding:
communicate with the previous auditor ■ Preparation of financial report
■ In absence of extenuating circumstances, do ■ Internal controls.
not proceed if permission is refused ■ Agreement by management to provide:
■ Information to be treated in strictest ■ Information for auditor
confidence ■ Access for auditor
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 Evaluate integrity of management
ASA220.12 and A8
■ Management integrity impacts on the way the
company is conducted.
■ Significant influence on internal control
Assess Compliance with ethical
requirements including
auditor independence
ASA102; ASA 220.9 and 11 APES110;
■ ASA 102 Comply with ethical requirements
■ ASA 220.9 Comply with ethical requirements

■ Lack of management integrity can lead to ■ ASA 220.11 Comply with independence
company insolvency. requirements
■ APES110 S290 Deals with auditor independence
■ Impacts on the auditor

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Evaluate independence Assess technical competence

ASA 220.11, 12 and A8; APES 110.100.6 to perform the audit
ASA 220. 14 and A8
■ Independence has been described as the
“cornerstone” of auditing. ■ Competent to perform the audit and has
capabilities, time and resources to do so.
■ Need to consider if there is any impediment to
auditor independence in accepting an ■ Resources within the audit firm
engagement.
■ Availability of external resources
■ Remove the impediment/ decline the
engagement
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Agree the Audit Engagement Terms Prepare the engagement letter

(Decide to Accept) ASA 210.10, A22-A25 and Appendix 1
ASA 210.9
■ A legal contract between auditor and client
■ Structured decision. ■ Objective of the financial report audit
■ Responsibilities of management
■ Consideration of significant issues
■ Scope of the audit
■ Documented. ■ Form of any reports
■ Explanation of the extent to which an audit
■ Consider ethical, technical and resourcing can be relied on to detect material
. Issues. misstatements
■ The auditor’s right to access information
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 Evaluate existing client on an Client Acceptance and Continuance
ongoing basis
ASA210.13 and A28 ■ Key sources of information:
■ Requirement to take into account new ■ Colleagues within the audit firm
information as the auditor becomes aware of it
■ Professional service providers
■ Generally an annual review ■ Databases
■ Media
■ Companies change, for example:
■ Regulatory agencies
■ Directors and /or senior management
■ Predecessor auditor
■ Strategies
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