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Unit 1 – Requirement 1 Prepared by:

We would expect Harer & Jones, CPAs to list in its quality control document as
important considerations, before accepting a new engagement or a prospective client,
the following policies and procedures, such as:

a. Obtain an understanding with the client regarding the services to be performed,


to minimize the risk of misunderstanding regarding the nature, scope, and
limitations of such services, and review available financial information such as
annual reports, interim financial statements, income tax returns, news items in
the financial press, and others.

b. Inquire third parties about any information concerning the integrity of the
prospective client and its management. It involves making inquiries of
appropriate parties such as prospective client’s bankers and lawyers, credit
agencies and other members of the business community who may have such
knowledge.

c. Communicate with the predecessor auditor about:

i. Any disagreement between the predecessor auditor and the client about
accounting principles and auditing procedures, or other similarly significant
matters.
ii. Any facts that might have a bearing on the integrity of the prospective
client’s management.
iii. Communications with those charged with governance regarding fraud,
non-compliance with laws and regulations, internal control-related matters,
and quality of accounting principles.
iv. The predecessor auditor’s understanding of the reasons for the change of
auditors.

Before accepting the engagement, the successor auditor should take the
initiative to communicate, either orally or in writing, with the predecessor auditor. The
successor auditor should obtain client’s permission to communicate with the
predecessor auditor. This is necessary procedure because the code of ethics refrain an
auditor from disclosing any confidential client information without specific consent of the
client, unless there is a legal or professional duty to disclose
Given the consent of the client, the predecessor auditor advises the successor
auditor whether there are any professional reasons not to accept the engagement. If the
client’s consent is not given, the firm should consider the implications in deciding to
accept the engagement.
d. Consider whether the prospective client has any circumstances that will require
special attention or that may represent unusual business or audit risks, such as
litigation or going concern problems. Matters pertaining to this step in accepting
an engagement include identifying the intended users of the audited financial
statements, making a preliminary assessment of the prospective client’s legal
and financial stability, identifying scope limitations, and evaluating the entity’s
auditability

e. Determine if the audit team is independent of the client and able to provide the
desired service

f. Determine if the audit team has the necessary technical skills and knowledge of
the industry to complete the engagement. In making assignments, the nature and
extent of supervision to be provided should also be taken into account.
Generally, the more able and experienced the personnel assigned to a particular
engagement, the less is the need for a direct supervision.
The typical audit team consist of:
i. A partner, who has both overall and final responsibility for the
engagement.
ii. One or more, who usually have significant expertise in the industry and
who coordinate and supervise the execution of the audit program.
iii. One or more seniors, who may have responsibility for planning the audit,
executing parts of the audit programs, and supervising and reviewing the
work of staff assistants.
iv. Staff assistants, who perform many of the required audit

g. Determine if acceptance of the client would violate any applicable regulatory or


ethical requirements.

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