Engagement acceptance & the planning process
Question 1
AB Accountants has been invited to become the auditors of XY Ltd, a company with a poor
reputation since several senior managers were convicted of corruption recently.
The company is adamant that it has now changed its culture, and is hoping that AB
Accountants will become its auditors as part of this new ethical outlook.
Identify possible safeguards AB Accountants might consider using?
Question 2
An accountant has been invited to carry out an engagement for a client but she has only
limited experience in this area.
What safeguards could she apply to ensure that the threat to professional competence and due
care is reduced to an acceptable level?
Answers follow on the next page
Engagement acceptance & the planning process
Question 1
Answer
AB Accountants must weigh up the possible costs and benefits of accepting nomination.
The firm may wish to apply safeguards such as:
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Obtaining a detailed knowledge of the client before accepting nomination securing the
client’s commitment to implement strong internal controls and the highest standards
of corporate governance.
Allocating the senior partner of the firm to be the engagement partner rather than the
junior partner.
If the firm does not believe that any such safeguards could be reduce the threats to
compliance with the fundamental principles to an acceptable level, then the firm should
decline the nomination.
Question 2
Answer
Possible safeguards could include:
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Acquiring technical knowledge of the relevant subject area
Assigning specific staff members who possess particular skills and experience
Using external experts
Increasing the expected duration of the engagement to allow for learning time and
gaining experience
Ensuring that the documentation of the engagement is comprehensively reviewed
once the field work has been completed
Engagement acceptance & the planning process