Basics of Audit Acceptance and Continuance

Acceptance and continuance of client relationships

Select 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 client

Partner 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 client

Partner to consider whether the firm needs to report the reasons for the withdrawal to regulatory authorities

What your firm must do

Firms 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.

APES 320 mandatory requirements	Firms with Assurance practices
"A firm shall establish policies and procedures for the acceptance and continuance of client relationships and specific engagements, designed to provide the firm with reasonable assurance that it will only undertake or continue relationships and engagements where the firm: Is competent to perform the engagement and has the capabilities, including time and resources, to do so; Can comply with ethical requirements; and Has considered the integrity of the client and does not have information that would lead it to conclude that the client lacks integrity." APES 320 paragraph 38	"The firm shall establish policies and procedures for the acceptance and continuance of client relationships and specific engagements, designed to provide the firm with reasonable assurance that it will only undertake or continue relationships and engagements where the firm: Is competent to perform the engagement and has the capabilities, including time and resources, to do so; Can comply with ethical requirements; and Has considered the integrity of the client and does not have information that would lead it to conclude that the client lacks integrity." ASQC 1 paragraph 26
"A firm shall establish policies and procedures that require: The firm to obtain such information as it considers necessary in the circumstances before accepting an engagement with a new client, when deciding whether to continue an existing engagement, and when considering acceptance of a new engagement with an existing client. If a potential conflict of interest is identified prior to accepting an engagement from a new or an existing client or during the conduct of an engagement, the firm to determine whether it is appropriate to accept or continue the engagement. If issues have been identified, and the firm decides to accept or continue the client relationship or a specific engagement, the firm to document how the issues were resolved." APES 320 paragraph 42	"Such policies and procedures shall require: The firm to obtain such information as it considers necessary in the circumstances before accepting an engagement with a new client, when deciding whether to continue an existing engagement, and when considering acceptance of a new engagement with an existing client. If a potential conflict of interest is identified prior to accepting an engagement from a new or an existing client or during the conduct of an engagement, the firm to determine whether it is appropriate to accept or continue the engagement. If issues have been identified, and the firm decides to accept or continue the client relationship or a specific engagement, the firm to document how the issues were resolved." ASQC 1 paragraph 27
"A firm shall establish policies and procedures on continuing an engagement and the client relationship, addressing the circumstances where the firm obtains information that would have caused it to decline the engagement had that information been available earlier. Such policies and procedures shall include consideration of: The professional and legal responsibilities that apply to the circumstances, including whether there is a requirement for the Firm to report to the person or persons who made the appointment or, in some cases, to regulatory authorities; and The possibility of withdrawing from the engagement or from both the engagement and the client relationship." APES 320 paragraph 44	"The firm shall establish policies and procedures on continuing an engagement and the client relationship, addressing the circumstances where the firm obtains information that would have caused it to decline the engagement had that information been available earlier. Such policies and procedures shall include consideration of: The professional and legal responsibilities that apply to the circumstances, including whether there is a requirement for the firm to report to the person or persons who made the appointment or, in some cases, to regulatory authorities; and The possibility of withdrawing from the engagement or from both the engagement and the client relationship." ASQC 1 paragraph 28
Supporting commentary APES 320 paragraphs 39 - 46	Supporting commentary ASQC 1 paragraphs A18 - A23

Pro-forma policies & procedures

Further guidance for assurance practices

As 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.

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Source: https://survey.charteredaccountantsanz.com/quality_control/system/relationship.aspx

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