When should a client continuance form be completed?
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SQCS No. 8, effective January 1, 2012, requires that a CPA firm establish and document policies and procedures for the acceptance and continuance of clients and engagements. The purpose of this standard is to integrate the client acceptance and continuance evaluation into the audit process as a key element in mitigating litigation and business risk. The standard emphasizes that a firm should be aware that the integrity and reputation of a client's management could affect the reliability of a client's accounting records and financial statements and, therefore, affect the CPA firm's reputation or potential involvement in litigation. A firm's policies and procedures should provide it with reasonable assurance that it will undertake or continue relationships and engagements only where it has made an annual evaluation of the integrity of a client's management and governance personnel, has the competency and capabilities to perform the engagement, can comply with legal and ethical requirements, and has obtained an understanding with the client as to the terms of an engagement. Client acceptance and continuance procedures are the foundation of the risk assessment process, primarily at the financial statement level. As discussed in AU-C 315, paragraphs A109 and A110, management's integrity is one of the elements of risk at the financial statement level. High risk at the financial statement level requires more evidence to mitigate the risk. Low risk requires less evidence. (Risk at the financial statement level, sometimes called "business risk", will received further discussion in future articles in this series.) Making the Client Acceptance or Continuance Decision
The investigative procedures include:
Client acceptance and continuance forms need to facilitate new and continuing client investigations. These forms should be reviewed and updated to annually evaluate continued association with a client and an engagement. The investigation of potential new clients and the ongoing evaluation of existing clients provide information that enables a CPA firm to determine that a client meets its quality standards. Once a decision is made to accept or continue a client relationship, the quality of client personnel generally should be evaluated as high, high in competence, and high in integrity. These attributes form the foundation for assessing risk at the financial statement level and collecting evidence on audit engagements. A client acceptance and continuance form should contain basic information about an entity's business and environment, including a description of its applicable financial reporting framework. For entities using special purpose frameworks, the auditor should work early in the pre-engagement planning process to obtain documentation supporting the framework and become familiar with the specific policies and procedures applied by the entity. The development of cost-beneficial audit strategies and audit plans will, of course, be based on the auditor's knowledge of these policies and principles, particularly for special purpose frameworks. You may request my illustrative (not peer-reviewed) client acceptance and continuance form by clicking on the "Contact Us" tab on my home page. For an overview of the entire small audit engagement process, you can register for a free, one-hour webcast with CPE credit that will be presented on March 21, 2014. You can also register for 12, two-hour webcasts in my Small Audit Series by clicking on the applicable box on the left side of my home page.
Acceptance and continuance of client relationshipsSelect each section to step through the elements of a quality control system. Finite resources mean that selecting the right clients can make or break a firm. If taken on, 'problem clients' can prevent firms from servicing other clients fully and prevent your firm taking on more business. Procedures can be adopted to help reduce the risk of accepting another firm's problem client. It is equally important that existing clients, and new engagements from existing clients, are monitored to ensure they continue to satisfy the firm's acceptance requirements, including conflict of interest requirements. One way to do this is to include a prompt, in work control documents, reminding staff to consider the continued acceptability of the client. Another way to monitor clients is to conduct an overall review of all the work performed for a client group. Importantly this can assist in identifying opportunities for the firm to provide additional services that will add value for the client as well as monitoring of the firm's quality control system. The Dispute Resolution Toolkit published by Chartered Accountants Australia and New Zealand (ANZ) can also be useful, assisting members in clarifying their relationships with clients and thereby minimising disputes. Procedures for accepting a new clientPartner decides to potentially accept or decline new client, and records decision Potentially accept Decline Consider reply and partner decides whether to accept new client Decline Accept Send engagement letter and attachments/other notifications (e.g. ATO, ASIC) and set up client file to comply with firm's engagement work paper protocol Procedures for a lost clientPartner to consider whether the firm needs to report the reasons for the withdrawal to regulatory authorities What your firm must doFirms that conduct assurance engagements are required to comply with APES 320 and ASQC 1. Firms that do not conduct any assurance engagements are required to comply only with APES 320.
Pro-forma policies & proceduresFurther guidance for assurance practicesAs well as ASA 210, containing requirements for the terms of audit engagements, auditors also need to apply ASA 220 Quality Control for Audits of Historical Financial Information when conducting audit engagements. This standard requires the engagement partner to be satisfied that appropriate procedures regarding the acceptance and continuance of client relationships and specific audit engagements have been followed, and that conclusions reached in this regard are appropriate and have been documented. For guidance on the requirements of ASA 210 and ASA 220 you could refer to the following publications available in the library: Australian Audit Manual and Toolkit, and the Australian Audit Guide and Toolkit for SMSFs. These contain further guidance and sample documents to assist you to apply the acceptance and continuance requirements to assurance engagements. What is the client acceptance continuance process?Client Acceptance or Continuance– Need to Know when to say no or yes. Asking the right questions from the client while considering new clients or continuance of existing clients, is a key first step for establishing a quality audit and relationship between the auditor and client.
What are the factors acceptance and continuance of client relationships and review engagements?Under the element of “Acceptance and Continuance of Client Relationships and Specific Engagements”, there are three major components – Competency of the Firm, Compliance with Ethical Requirements, and Integrity of the Client.
Why is a client acceptance and continuance important?Procedures can be adopted to help reduce the risk of accepting another firm's problem client. It is equally important that existing clients, and new engagements from existing clients, are monitored to ensure they continue to satisfy the firm's acceptance requirements, including conflict of interest requirements.
What is the purpose of the acceptance and continuance of client relationships and specific engagements?The purpose of this standard is to integrate the client acceptance and continuance evaluation into the audit process as a key element in mitigating litigation and business risk.
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