What are the factors that an auditor need to consider before accepting a company as an audit client?
One of the principles underlying auditing standards notes that the auditor obtains an understanding of the entity and its environment to provide a basis for identifying and assessing the risks of material misstatements in the financial statements. Auditors need an understanding of the client's business and industry because the nature of the business and industry affect business risk and the risk of material misstatements in the financial
statements. Auditors use the knowledge of these risks to determine the appropriate extent of further audit procedures. Show 1. Industry and External Environment - Read industry trade publications, AICPA Industry Audit Guides, and regulatory requirements. During the course of the plant tour, the CPA will obtain a perspective of the client's business, which will contribute to the auditor's understanding of the entity and its environment.
Remember that an important aspect of the audit will be an effective analysis of the inventory cost system. Therefore, the auditor will observe the nature of the company's products, the manufacturing facilities and processes, and the flow of materials so that the information obtained can later be related to the functions of the cost system. The three categories of client objectives are (1) reliability of financial reporting, (2) effectiveness and efficiency of operations, and (3) compliance with laws and regulations. Each of these objectives affects the auditor's assessment of inherent risk and evidence accumulation as follows: 1. Reliability of financial reporting - The financial reporting framework selected by management may affect the reliability of financial reporting. For example, management's selection of the cash basis of accounting may affect the risks of material misstatement differently than the risks of material misstatement that might be present if management selects U.S. GAAP or IFRS as the framework for financial reporting. Furthermore, recent changes in those standards by the standards-setting bodies may impact the complexity of the underlying accounting for transactions, accounts, and disclosures, which increases inherent
risks. If management sees the reliability of financial reporting as an important objective, and if the auditor can determine that the financial reporting system is accurate and reliable, then the auditor can often reduce his or her assessment of inherent risk and planned evidence accumulation for material accounts. In contrast, if management has little regard for the reliability of management's financial reporting, the auditor must increase inherent risk assessments and gather more appropriate
evidence during the audit. What should I consider before accepting an audit client?Before accepting an engagement to audit a new Service organization, the service auditor must perform their due diligence around the client acceptance process, anticipate acceptance issues, address the client risk, and perform risk acceptance procedures.
What factors should an auditor consider?The auditor considers many factors in determining the nature, timing, and extent of auditing procedures to be performed in an audit of an entity's financial statements. One of the factors is the existence of an internal audit function.
What factors should an auditor consider prior to accepting an engagement prior to accepting a client the auditor should?What factors should an auditor consider prior to accepting an engagement? The auditor should investigate the client, the clients standing in the business community, financial stability, and relations with its previous CPA firm. You want to assess integrity of the client to avoid fraud.
What an auditor should consider before accepting an assurance engagement?They should include the following:. The objective and scope of the audit;. The responsibilities of the auditor;. The responsibilities of management;. The identification of an applicable financial reporting framework; and.. Reference to the expected form and content of any reports to be issued.. |