Acceptance and Continuance
of Client Relationships and
Specific Engagements
(ISQC1 A.18 – A.23)
September 23, 2009
Acceptance and Continuance of Client Relationships and Specific Engagements
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ISQC1
Acceptance and Continuance of Client Relationships and Specific Engagements
Assess and Respond to Engagement Risk
Assess Engagement Risk in order to:
 Decide whether to accept appointment to a prospective Audit Engagement.
 Decide whether to accept reappointment to a continuing Audit Engagement.
 Develop an appropriate Audit Plan if we accept appointment or reappointment.
If we conclude that withdrawal from the Audit Engagement is necessary, the
withdrawal process will be performed.
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ISQC1
Acceptance and Continuance of Client Relationships and Specific Engagements
Assess and Respond to Engagement Risk
For Audit Engagements in process for more than one year, Engagement Risk should
be evaluated periodically. However, audit engagement teams have to establish the
proper period for evaluation depending on the engagement risk and the audit Firm
risk.
The assessment of Engagement Risk should be approved by at least one other
partner in the audit Firm, before beginning fieldwork.
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ISQC1
Acceptance and Continuance of Client Relationships and Specific Engagements
Assess and Respond to Engagement Risk
The involvement of the Audit Engagement Partner in the assessment process is vital.
There are factors that influence our assessment of Engagement Risk for every
prospective or continuing Audit Engagement. These factors are set out in Factors
affecting engagement risk and acceptance and continuance (ISQC1 A.19).
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ISQC1
Acceptance and Continuance of Client Relationships and Specific Engagements
Assess and Respond to Engagement Risk
Factors affecting engagement risk and acceptance and continuance (ISQC1 A.19).
The assessment of the following risk factors will generally not only affect the
assessment of Engagement Risk but will also be important factors that affect the
decision whether to accept a new Audit Engagement or continue our relationship with
an existing Audit Engagement:
 Management characteristics and integrity
 Organization and Management structure
 Nature of the business
 Business environment.
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ISQC1
Acceptance and Continuance of Client Relationships and Specific Engagements
Assess and Respond to Engagement Risk
Factors affecting engagement risk and acceptance and continuance (ISQC1 A.19).
The following factors are likely to effect the assessment of Engagement Risk, but may
also affect the decision whether or not to accept a new Audit Engagement or continue
our relationship with an existing Audit Engagement:
 Nature of the Audit Engagement
 Financial results
 Business relationships and Related Parties
 Our prior knowledge and experience
 Likelihood of intentional misrepresentation.
Practically, the audit Firm has to consider those factors that, individually or in
combination, cause us to assess Engagement Risk as being other than normal degree
of risk.
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ISQC1
Acceptance and Continuance of Client Relationships and Specific Engagements
Assess and Respond to Engagement Risk
For a prospective Audit Engagement, the audit Firm assesses Engagement Risk
based on the information obtained from predecessor auditors, inquiries of senior
Management, Those Charged with Governance, and other appropriate sources.
For a continuing Audit Engagement (ISQC1 A.21), the audit Firm assesses
Engagement Risk based on experience with the Client and Entity and additional audit
procedures performed in the current audit. This may not be appropriate if there has
been a significant change in the nature of the Entity’s business or changes in
ownership, Management, or financial condition.
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ISQC1
Acceptance and Continuance of Client Relationships and Specific Engagements
Assess and Respond to Engagement Risk
How to assess? (ISQC 1 A.20)
•
•
•
•
•
Discuss with Management and knowledgeable third parties.
Check background of principal officers and/or principal owners.
Read the most recent Financial Statements of the prospective client.
Seek to obtain information about the beneficial owners of the prospective client.
Obtain information of senior Management and Management structure, its business
reputation, and its financial position.
• Identify significant Accounting Policies and the availability of adequate Audit
Evidence.
The judgment is based not only on the identification of Engagement Risk factors and
other preliminary investigations, as discussed above, but also on consideration of the
following:
 Recognition that some Engagement Risk factors exist in virtually all Audit
Engagements but they usually amount to a normal degree of Engagement Risk.
 The assessment of the likelihood of failing to detect material Misstatements during
our Audit Engagement and the probable consequences of such a failure.
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ISQC1
Acceptance and Continuance of Client Relationships and Specific Engagements
Assess and Respond to Engagement Risk
If we identify additional information that indicates a change in Engagement Risk, we
should consider whether our planning decisions remain appropriate and, as
applicable, communicate, on a timely basis, such information to members of the
Engagement Team.
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ISQC1
Acceptance and Continuance of Client Relationships and Specific Engagements
Establish the Terms of the Engagement (ISQC1 A.18)
How to establish the terms of engagement?
• Identify and resolve potential misunderstandings in relation to the terms of the audit
and the respective responsibilities of Management and our responsibilities at the
beginning of an audit relationship and, at a minimum, periodically thereafter.
• Agree on the terms of the Audit Engagement with the Client before beginning
significant portions of fieldwork.
• Identify the applicable financial reporting framework such as Thai Accounting
Framework.
• Agree our understanding with the Client as to the objectives and scope of the Audit
Engagement, the extent of Management’s responsibilities and our responsibilities before
the finalization of engagement.
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ISQC1
Acceptance and Continuance of Client Relationships and Specific Engagements
Selecting the engagement team (ISQC1 A.18)
Who is responsible?
Audit engagement partner
must be satisfied
Appropriate
capabilities
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ISQC1
Appropriate
competencies
Sufficient time
available
Acceptance and Continuance of Client Relationships and Specific Engagements
The audit engagement team are responsible for the preliminary engagement
activities.
 Audit engagement partner–primarily responsible for preliminary engagement
activities.
 A risk management partner, independent of the engagement, who concurs with the
engagement acceptance and continuance, and risk assessment conclusion.
 Audit manager–assists in performing preliminary engagement activities.
 Field senior–assists in performing preliminary engagement activities.
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ISQC1
Acceptance and Continuance of Client Relationships and Specific Engagements
Establish the Engagement Team (ISQC1 A.18)
• The Audit Engagement Partner should be satisfied that the Engagement Team
collectively has the appropriate capabilities, competence, and time to perform the
Audit Engagement.
• The Audit Engagement Partner should determine that the Engagement Team
selected is appropriate for the Audit Engagement.
• The Audit Engagement Partner is also responsible for ensuring where additional
technical assistance or specialized knowledge is required as a result of the nature
and characteristics of the Audit Engagement that the assistance or specialized
knowledge is obtained.
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ISQC1
Acceptance and Continuance of Client Relationships and Specific Engagements
Establish the Engagement Team (ISQC1 A.18)
The following factors, among others, relate to the Audit Engagement to be staffed, and
need to be considered in selecting the Engagement Team:
 The size and complexity of the business, including its information system, and further
including any industry or other expertise necessary (e.g., the use of derivatives,
complex financing structures) and any Significant Risks anticipated, including those
due to Fraud
 The applicable financial reporting framework used in preparing the Financial
Statements and the applicable auditing standards used in auditing the Financial
Statements
 The Client’s and Management’s expectations regarding the timing of the work, the
reporting dates, and other relevant matters
 Applicable independence considerations, including any possible conflicts of interest
 The qualifications and experience of staff, including their ability to apply professional
judgment
 The planned participation of the Audit Engagement Partner and Audit Manager
 The availability and the effective use of staff
 Continuity of staff.
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ISQC1
Acceptance and Continuance of Client Relationships and Specific Engagements
Common Documentation
 Key working papers regarding to Assess Engagement Risk and Establish Terms of
Engagement, Fraud and Error working papers, and Engagement Letter.
 The audit manager of the engagement usually completes this working paper.
 Prepare and complete the fraud checklist.
 The terms of the audit engagement should be documented in writing and
communicated to the client.
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ISQC1
Acceptance and Continuance of Client Relationships and Specific Engagements
Common Documentation
Document the overall responses to address the assessed risks of material
misstatement at the overall financial-statement level.
Document the conclusions reached with regard to engagement acceptance and
continuance.
In assessing and responding to engagement risk, we document:
 The response to any unresolved independence or conflict of interest issues.
 Results of our background checks, if any.
 The assessment of engagement risk.
 Factors considered in our assessment of engagement risk, including fraud risk
factors.
 Factors identified as increasing engagement risk.
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ISQC1
Acceptance and Continuance of Client Relationships and Specific Engagements
Withdraw from the engagement (ISQC1 A.22)
If we conclude that withdrawal from the Audit Engagement is necessary, we should:
 Discuss, if legally permissible, our withdrawal and the reasons for it with the appropriate
level of Management and Those Charged with Governance.
 Consider whether there is a professional or legal requirement to report to:
1) The person or persons who made our appointment
2) Regulatory authorities.
When we conclude that withdrawal from the Audit Engagement is necessary, we document:
 Our decision to withdraw and the reasons
 Our discussions with Management and Those Charged with Governance
 Communications, regarding the withdrawal, with the person or persons who made our
appointment
 Communications, regarding the withdrawal, with regulatory authorities.
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ISQC1
QUESTION
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ISQC1