Factors 

the audit firm will consider about the client before accepting appointment.
Background Information
1. Name of Prospective Client
2. Official Contact Details such as addresses, telephone, Fax and e mail addresses
3. Description of business and industry
4. Associated Risk with such industry / business
5. Position in industry
6. Organisational Structure i.e. subsidiary and Parent etc.
7. Financial Year to which assignment is given
8. Name of Referral Source: Self-generated/ Others
9. Name of: Directors, Officersand KMP’s
10. List of Finance & Accounts department personnel
11. Shareholding pattern with details of principal shareholders
12. List of Company’s Bankers
13. Name of Lawyers/Legal Counsel
II. Eligibility
1. Based on the Eligibility norms laid down as per the relevant section of the Companies Act, 2013,
determine that, is the firm eligible to accept the audit engagement.
2. Do the firm personnel who is indented to work in this assignment have knowledge of relevant
industries or subject matter?
 Do the firm personnel have appropriate experience and understanding of relevant regulatory or
reporting requirements or the ability to gain the necessary skills and knowledge effectively
whenever required?
 Does the firm have necessary Experts, as required?
 Does the firm believe that it would be able to complete the engagement within the reporting
deadline?
III. Management assessment
1. Inquire of the client whether the client or any of its officers, directors, or shareholders has ever
been convicted of a crimeor investigated by any regulatory agency or the self-governing
regulatory body of any business or association?
2. Is the client’s management dominated by a single person, or small group?
3. Does the management tend to accept higher than normal risk, compared to the industry trend?
4. Is there any pressure on its employees to ‘achieve’ earnings numbers that the management
wishes to release (or has released) to others?
5. Is management compensation closely tied to financial?
6. Are there any cases in past where employees of the Entity have filed Civil/criminal suits against
the Company/management/persons of management?
7. Do the Board and the audit committee lack sophisticated personnel?
8. Are there any instances where management override or circumvent internal controls?
IV. Investigation of Industry background and Risk Factor
1. Before acceptance, whether we have considered, if there appears, substantial doubt about the
client’s ability to continue in existence for next one year from the balance sheet date.
2. Has any of the Contingent Liabilities crystallized in the recent past, and what is the prospective
effect on the Profit of the entity?
3. Have we obtained client’s financial statements and tax returns for the past three years together
with copies of management letters if available?
4. Are there any legal/ political/ technological changes which impact the Industry in which the
client is operating?

Seven (7) Principles of Public Life

1. Selflessness 

Holders of public office should act solely in terms of the public interest. 

2. Integrity 

Holders of public office must avoid placing themselves under any obligation to people or
organizations that might try inappropriately to influence them in their work. They should not act
or take decisions in order to gain financial or other material benefits for themselves, their family,
or their friends. They must declare and resolve any interests and relationships. 

3. Objectivity 

Holders of public office must act and take decisions impartially, fairly and on merit, using the
best evidence and without discrimination or bias. 

4. Accountability 

Holders of public office are accountable to the public for their decisions and actions and must
submit themselves to the scrutiny necessary to ensure this. 

5. Openness 

Holders of public office should act and take decisions in an open and transparent manner.
Information should not be withheld from the public unless there are clear and lawful reasons for
so doing. 

6 Honesty 

Holders of public office should be truthful. 

7. Leadership 

Holders of public office should exhibit these principles in their own behaviour. They should
actively promote and robustly support the principles and be willing to challenge poor behaviour
wherever it occurs. 

Five factors that an audit firm can take to ensure that they perform quality audit.
Audit process: Step 1, the selection phase

A risk assessment is carried out to develop an audit plan. This stage may require the
auditors to look through relevant business documents and previous audit results.

Audit process: Step 2, the planning phase

Relevant background information is gathered. Contact is initiated with the client. Audit
objectives and scope are determined, in addition to timings of fieldwork and report
distribution. An open meeting may be performed during this phase, to present the audit
plan to key staff members.

Audit process: Step 3, the execution phase

Fieldwork is executed by the internal audit staff. Fieldwork could include interviews with
relevant employees from the auditee. Regular status meetings are performed. This
maintains communication with the client regarding audit progress. Audit observations,
potential findings, and recommendations are discussed with the client when identified.

Audit process: Step 4, the reporting phase

Audit findings, conclusions, and specific recommendations are summarized. This summary
is then communicated to the client in a report draft. From this draft, the client is granted to
opportunity to respond to the report and submit an action plan and time frame. Client
responses and action plans are added to the final report copy.

Audit process: Step 5, the follow-up

A subsequent audit is conducted. This succeeding audit is used to follow up on the previous
audit findings. Following-up on external audits via a voluntary internal audit is best
practice. Follow up is recommended to occur within at least one year from the issue of the
first audit report.

What is meant by an engagement letter?

An engagement letter is a written agreement that describes the business relationship to be entered
into by a client and a company. The letter details the scope of the agreement, its terms, and costs.
The purpose of an engagement letter is to set expectations on both sides of the agreement.

Who the engagement letter is from and sent to?

The engagement letter is from the auditor and it is sent to their client.

The contents of the engagement letter.

1. Auditor’s Responsibilities
2. Management’s Responsibilities
3. Scope of Audit
4. Management’s Representations
5. Irregularities and Fraud
6. Other services
7. Fees
8. Client’s Confirmation

When the engagement letter will actually be sent?

An engagement letter is sent after the receipt of the communication regarding appointment, but
preferably before the commencement of the engagement, spewing out the extent of his
responsibilities to avoid any misunderstanding concerning his engagement and documents and
confirming the acceptance of appointment, the objectives, and scope of the audit, the extent of
responsibilities and the form of reports to be made to the client.

Factors an audit firm should consider before accepting a nomination to be an auditor

 IESBA International Code of Ethics for Professional Accountants (the Code) requires,
amongst any acceptance of a new client being in line with ethical principles, that the
auditor should have an appropriate understanding of the nature and complexity of the
client’s business, as well as knowledge of relevant industrial regulatory or reporting
requirements. 

 ISA 220 (Revised) Quality Management for an Audit of Financial Statements requires the
auditor to assess whether there are sufficient and appropriate resources to perform the
engagement and that there is the ‘appropriate competence and capabilities. 
 Auditor independence and a culture of professional ethical behavior are critical to an
audit firm’s ability to fulfill its gatekeeper responsibilities.
 Auditing firms must keep these responsibilities in mind in all contexts, including when
exploring complex business relationships and firm restructurings