ASSIGNMENT 1: Review client background information Overview In this assignment, you will: review the client's background information and audit history review the CLIENT ACCEPTANCE FORM supporting the partners' decision to accept the engagement. t review the ENGAGEMENT LETTER Auditing concepts Client acceptance Before accepting a company as a new audit client, a CPA firm must establish whether it is independent and has the staff and expertise necessary to perform the audit. Before beginning the audit, the auditors must understand the company's business, industry, ownership, and management. If another public accounting firm previously audited the company, the successor auditor is required to communicate with the predecessor auditor. The purpose of this communication is for the predecessor auditor to have the opportunity to inform the successor auditor of any disagreements with the company over accounting issues, audit procedures, fees, or management's integrity. The successor CPA firm may also wish to contact the prospective client's banker and attorney to evaluate the company's acceptability. By performing all of these procedures, a CPA firm can reduce the risk of being associated with a client that the firm's partners would prefer not to serve. Unacceptable clients might include those with whom the risk of litigation is high, collection problems may arise, or client personnel are uncooperative. Engagement letter An engagement letter is the written agreement between a CPA firm and its client for the performance of an audit or related services. AICPA auditing standards (AU-C 210) indicate that the engagement letter includes the following information: The objective and scope of the audit. This normally includes the names and dates of the financial statements to be audited The responsibilities of the auditor . A statement informing the client that the audit will be performed in accordance with generally accepted auditing standards (or other auditing standards where applicable). An audit is designed to provide reasonable assurance that the financial statements are free of material misstatement, whether due to fraud or error. The audit procedures performed depend on the auditor's judgment. Due to the inherent limitation of an audit and the inherent limitation of internal control, an unavoidable risk exists that some material misstatements may not be detected. - - Assignment ONE + Page 2 ASSIGNMENT 1: Review client background information Overview In this assignment, you will: review the client's background information and audit history review the CLIENT ACCEPTANCE FORM supporting the partners' decision to accept the engagement. t review the ENGAGEMENT LETTER Auditing concepts Client acceptance Before accepting a company as a new audit client, a CPA firm must establish whether it is independent and has the staff and expertise necessary to perform the audit. Before beginning the audit, the auditors must understand the company's business, industry, ownership, and management. If another public accounting firm previously audited the company, the successor auditor is required to communicate with the predecessor auditor. The purpose of this communication is for the predecessor auditor to have the opportunity to inform the successor auditor of any disagreements with the company over accounting issues, audit procedures, fees, or management's integrity. The successor CPA firm may also wish to contact the prospective client's banker and attorney to evaluate the company's acceptability. By performing all of these procedures, a CPA firm can reduce the risk of being associated with a client that the firm's partners would prefer not to serve. Unacceptable clients might include those with whom the risk of litigation is high, collection problems may arise, or client personnel are uncooperative. Engagement letter An engagement letter is the written agreement between a CPA firm and its client for the performance of an audit or related services. AICPA auditing standards (AU-C 210) indicate that the engagement letter includes the following information: The objective and scope of the audit. This normally includes the names and dates of the financial statements to be audited The responsibilities of the auditor . A statement informing the client that the audit will be performed in accordance with generally accepted auditing standards (or other auditing standards where applicable). An audit is designed to provide reasonable assurance that the financial statements are free of material misstatement, whether due to fraud or error. The audit procedures performed depend on the auditor's judgment. Due to the inherent limitation of an audit and the inherent limitation of internal control, an unavoidable risk exists that some material misstatements may not be detected. - - Assignment ONE + Page 2