Ocean Manufacturing

2448 WordsDec 8, 201010 Pages
1. The client acceptance process can be quite complex. Discuss five procedures an auditor should perform in determining whether to accept a client. Which of these five are required by auditing standards and identify the applicable standards? 1. Obtain an understanding of the client 's business and operations. Consideration should be given to reading available financial information regarding the prospective client such as annual reports, registration statements, Forms 10-K, other reports to regulatory agencies and income tax returns. 2. Inquire as to the general reputation of high ranking employees, influential directors and shareholders, as well as the entity itself. Carefully consider any matters that may negatively reflect on…show more content…
Why? In order to minimize the likelihood of association with a client whose management lacks integrity, Statement on Quality Control Standards No. 2, System of Quality Control for a CPA Firm 's Accounting and Auditing Practice, (QC Section 20.14) (applicable to auditing and accounting and review services) provides that "policies and procedures should be established for deciding whether to accept or continue a client relationship and to perform a specific engagement for that client (QC Section 20.14)", to minimize the likelihood of the specific policies and procedures established and the nature and extent to which they may be documented may vary significantly from firm to firm. Throughout the process, from initial consideration about accepting or continuing a client to issuance of an audit report, auditors are faced with risk. This risk can be thought of as having three components: • The entity 's business risk - The risk that the entity will not survive or will not be profitable. • The auditor 's business risk - The risk to the auditor from association with the client, consisting of the risk of potential litigation costs and the related effect on the auditor 's reputation and the risk of other costs (not related to litigation) such as the effects on fee realization. • The auditor 's audit risk - The risk that the auditor may unknowingly fail to appropriately modify his or her opinion on financial statements that are
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