CHAPTER 5

CLIENT ACCEPTANCE

BY:
MOCHAMAD RISNANDA
Client Acceptance: the First Step on the Journey to an Opinion

The client acceptance phase of the audit has two objectives:

1 examination of the proposed client to determine if there is any
reason to reject the engagement (acceptance of the client);
2 convincingtheclienttohiretheauditor(acceptancebytheclient).
Client Acceptance: the First Step on the Journey to an Opinion

• Audit Clients
• Steps in the Client Acceptance Process
Evaluate the Client’s Background

The auditor should obtain a knowledge of the client’s business that is

sufficient to enable him to identify and understand the events,
transactions, and practices that may have a significant effect on the
financial statements or on the audit report.1 Main reasons for
obtaining this understanding are (1) to evaluate the engagement risks
associated with accepting the specific engagement and (2) to help the
auditor in determining whether all professional and ethical
requirements (including independence, competence, etc.) regarding
this client can be met.
Evaluate the Client’s Background

• Topics of Discussion
• New Client Investigation
• Continuing Clients
Ability to Meet Ethical and Specific Competence Requirements

• Independence
• Litigation and Independence
• Specific Competencies
• Partner Rotation
• IAPS on Group Audit
Use of Other Professionals in the Audit

The auditor may discover in doing the search for background

information that another auditor will audit a portion of the client’s
financial statements or that an outside specialist such as IT,
environmental or tax specialist, may be needed to properly audit the
client. International standards dictate certain procedures in these
cases.
Use of Other Professionals in the Audit

• ■ Using the Work of Another Auditor

Grup Auditor, Audit Responsibility, Documentation
• ■ Using the Work of an Expert
Expert’s competence, Objectivity, Communications to expert
Communicating With the Predecessor (Existing) Auditor

If there is an existing auditor, the IFAC Code of Ethics for Professional

Accountants (discussed in Chapter 3 Ethics for Professional
Accountants) requires the new auditor to communicate directly with
the predecessor auditor

- Request Permission of Client

Acceptance by the Client – The Engagement Proposal

The auditor has determined that the client is acceptable from a risk and
ethics perspective, and has concluded that the ethical requirements
regarding the specific client engagement can be met
- Continuing Client Audit Proposal
- New Client Audit Proposal
- Establishing and Negotiating Audit Fees
The Audit Engagement Letter

It is in the interests of both client and auditor that the auditor sends an
engagement letter, 25 preferably before the commencement of the
engagement, to help in avoiding mis- understandings with respect to
the engagement.
The Audit Engagement Letter

- Contents of the Engagement Letter

- Financial Reporting Framework