File Name: ifac client acceptance and continuance forms .zip
The purpose of assurance engagements is to increase the confidence of end users of information by reducing their level of risk. It therefore follows that the user needs to trust the professional who is providing the assurance. In order to be trusted the auditor needs to be independent of their client. Independence can be defined as having 'freedom from situations and relationships where objectivity would be perceived to be impaired by a reasonable and informed third party.
Despite this need for trust the last thirty years has witnessed a number of high profile corporate scandals that have had far reaching implications for companies, economies and accountancy firms. Enron and Worldcom are perhaps two of the most high profile examples from recent times.
To improve the image of the profession and to restore trust between users of accountancy services and the practitioners, it is vital that accountants operate and are perceived to operate according to an accepted code of ethics.
A conceptual framework relies on a principles rather than a rules based approach. This provides guidance so that the principles may be applied to wide ranging and - potentially - unique circumstances. Whilst it is expected that practitioners apply the spirit of the code to every day practice the framework and principles would be of little use if they could not be enforced.
Professional bodies like the ACCA therefore reserve the right to discipline members who infringe the rules through a process of:. Members should act diligently and in accordance with applicable technical and professional standards when providing professional services. Practitioners needs to 'behave and be seen to behave' in an ethical, professional manner.
This means complying with the Code of Ethics in every professional situation. Definitions of threats. The following are all examples of behaviour that could threaten the practitioner's independence from their clients:. This occurs when an auditor has a beneficial interest in a client's performance.
Examples include:. This occurs when an auditor has to review work that they previously performed. For example: if the external auditor prepared the financial statements and then audited them. There is a risk that the auditor would not identify any shortcomings in their own work for fear of penalty either financial or reputational. This can occur when the auditor is asked to promote or represent their client in some way.
In this situation the auditor would have to be biased in favour of the client and therefore cannot be objective. This could happen if the client asked the auditor to promote their shares for a stock exchange listing or if the client asked the auditor to represent them in court. This occurs when the auditor is too sympathetic or trusting of the client because of a close relationship with them. This may be because a close friend or relative of the auditor works in a key role for the client.
The auditor may trust their friend or relative to not make mistakes and therefore not review their work as thoroughly as they should and as a result allow material errors to go undetected in the financial statements. This can also arise after a long association with a client. Clients may try to harass or bully auditors into giving preferential audit reports.
They may use the fee as leverage. The auditor should not give in to such pressure and, in the circumstances, may choose to resign from such a client. In order to guard against these threats, real or perceived, firms should establish procedures to enable them to:.
Usually this will be done through the use of checklists. Whilst ethics should always be of paramount consideration it must be considered at these vital junctures:. It is important to note that the safeguards listed below are generally well regarded principles that can be applied across a range of engagements and national boundaries.
However, national regulatory authorities may have their own ethical standards such as the UK's Auditing Practices Board's Ethical Standards which are enforceable nationally. In certain circumstances the limits and thresholds may be different. External auditors are in a unique position of having a legal right of access to all information about their clients. The client must be able to trust the auditor not to disclose anything about their business to anyone as it could be detrimental to their operations.
As a basic rule, members of an audit team should not disclose any information to those outside of the audit team, whether or not they work for the same firm. There is little point using different teams for different work assignments if staff from different teams are disclosing information to each other!
Information should only be disclosed under certain circumstances. In some circumstances the auditor must disclose the information and in others the auditor may chose to disclose the information, as follows:. Public interest. Whether or not it is in the public interest is difficult to prove and the auditor must proceed with caution if thinking of disclosing information for this reason. Such examples could include fraud, environmental pollution, or simply companies acting against the public good.
Legal advice should be sought beforehand to avoid the risk of being sued. Any advice given should be in the best interests of the client. If the preconditions for an audit are not present, the auditor should discuss the matter with management, and should not accept the engagement unless required to do so by law or regulation.
The engagement letter will be sent before the audit. It should be reviewed every year to ensure that it is up to date but does not need to be reissued every year unless there are changes to the terms of the engagement. The auditor must issue a new engagement letter if the scope or context of the assignment changes after initial appointment. ISA requires the auditor to consider whether there is a need to remind the entity of the existing terms of the audit engagement for recurring audits and many firms choose to send a new letter every year, to emphasise its importance to clients.
Reasons for changes. They should include the following:. Illustration 1: Example of an audit engagement letter. This letter and the attached terms of business dated 25 November 20X0 set out the basis on which we are to provide services as auditors and your and our respective responsibilities. The objective and scope of the audit: You have requested that we audit the financial statements of Blake Company, which comprise the statement of financial position as at December 31, and the income statement, statement of changes in equity and cash flow statement for the year then ended, and a summary of significant accounting policies and other explanatory information.
We are pleased to confirm our acceptance and our understanding of this audit engagement by means of this letter. Our audit will be conducted with the objective of our expressing an opinion on the financial statements. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.
Because of the inherent limitations of an audit, together with the inherent limitations of internal control, there is an unavoidable risk that some material misstatements may not be detected, even though the audit is properly planned and performed in accordance with ISAs. In making our risk assessments, we consider internal control relevant to the entity's preparation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control.
However, we will communicate to you in writing concerning any significant deficiencies in internal control relevant to the audit of the financial statements that we have identified during the audit. The responsibilities of management: Our audit will be conducted on the basis that management acknowledge and understand that they have responsibility:. As part of our audit process, we will request from management written confirmation concerning representations made to us in connection with the audit.
Report: We will report to the members of Blake Company as a body, whether in our opinion the financial statements present fairly in all material respects, the financial position of Blake Company as at December 31, and its financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards.
The form and content of our report may need to be amended in the light of our audit findings. Fees: Our fees, which will be billed as work progresses, are based on the time required by the individuals assigned to the engagement plus out-of-pocket expenses.
Individual hourly rates vary according to the degree of responsibility involved and the experience and skill required. Period of engagement: This engagement will start on 01 January 20X1 with the company's accounting period ending on 31 December. We will not be responsible for earlier years. This letter supersedes any previous engagement letter for the period covered.
Once agreed, this letter will remain effective for future years from the date of signature unless it is terminated, amended or superseded. You or we may agree to vary or terminate our authority to act on your behalf at any time without penalty.
Notice of variation or termination must be given in writing. Limitation of liability: To the fullest extent permitted by law, we will not be responsible for any losses, where you or others supply incorrect or incomplete information, or fail to supply any appropriate information or where you fail to act on our advice or respond promptly to communications from us. Our work is not, unless there is a legal or regulatory requirement, to be made available to third parties without our written permission and we will accept no responsibility to third parties for any aspect of our professional services or work that is made available to them.
Confirmation of your agreement: Please confirm your agreement to the terms of this letter and the attached terms of business by signing and returning the enclosed copies. Please sign and return the attached copy of this letter to indicate your acknowledgement of, and agreement with, the arrangements for our audit of the financial statements including our respective responsibilities.
If this letter and the attached terms of business are not in accordance with your understanding of our terms of appointment, please let us know. Contents of the engagement letter. UK Syllabus Focus. These can be summarised as follows:. ES 4 - Fees, remuneration and evaluation policies, litigation, gifts and hospitality. The main activity of Pink Co is providing investment advice to individuals regarding saving for retirement, purchase of shares and securities and investing in tax efficient savings schemes.
Pink is regulated by the relevant financial services authority. Mrs Goodall has been the engagement partner for Pink Co, for the previous six years and so has a sound knowledge of the client. Mrs Goodall has informed you that she would like her son Simon to be part of the audit team this year; Simon is currently studying for his first set of fundamentals papers for her ACCA qualification.
Mrs Goodall also informs you that Mr Supper, the audit senior, received investment advice from Pink Co during the year and intends to do the same next year. In an initial meeting with the finance director of Pink Co, you learn that the audit team will not be entertained on Pink Co's yacht this year as this could appear to be an attempt to influence the opinion of the audit.
Instead, he has arranged a day at the horse races costing less than two fifth's of the expense of using the yacht and hopes this will be acceptable. Answer plan. Mrs Goodall has informed you that she would like her son Simon to be part of the audit team this year ; Simon is currently studying for his first set of fundamentals papers for her ACCA qualification.
Mrs Goodall also informs you that Mr Supper, the audit senior , received investment advice from Pink Co during the year and intends to do the same next year. Test your understanding 2.
The purpose of assurance engagements is to increase the confidence of end users of information by reducing their level of risk. It therefore follows that the user needs to trust the professional who is providing the assurance. In order to be trusted the auditor needs to be independent of their client. Independence can be defined as having 'freedom from situations and relationships where objectivity would be perceived to be impaired by a reasonable and informed third party. Despite this need for trust the last thirty years has witnessed a number of high profile corporate scandals that have had far reaching implications for companies, economies and accountancy firms. Enron and Worldcom are perhaps two of the most high profile examples from recent times.
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Acceptance and Continuance of Client Relationships and Specific. Engagements. addition, it contains related guidance in the form of application and other explanatory systems of quality control such as manual notes, checklists and forms.
Link to this page:. A A Documentation.. Effective Date 2.
This project resulted in the issue of the following two Standards:. The existing ISA establishes basic principles and essential procedures, and provides guidance relating to quality control for both an audit firm and an individual audit engagement. It was originally envisaged that the revised ISA would be similarly structured with a similar scope. Elements of a firm's system of quality control addressed in ISQC 1 comprise:. Elements of quality control with respect to an audit engagement addressed in ISA Revised comprise:. The background to this project was explained in the Explanatory Memorandum to the exposure draft.
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