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- 10 Marks
Question
Papa Nii and Papa Nana who just qualified as Professional Accountants have decided to enter into professional practice under a firm name Nana Nii & Associates. These two have been trainee accountants of an Audit and Assurance firm for three years before qualifying.
For their first engagement, the CEO of Mberdane Ltd. has nominated Nana Nii & Associates for appointment as auditors of his company though Mberdane Ltd was a former client of their former firm, Papa Nii and Papa Nana were never on the engagement team of Mberdane Ltd. As beginners, Papa Nii and Papa Nana have intended to follow best practices as required by ISQC 1 “Quality control for firms that perform audits and reviews of financial statements, and other assurance related services”. However, they are not clear on the matters that they have to consider in their acceptance decision according to the standard. They have approached you, a senior partner of their former firm, for advice.
Required:
Advise Papa Nii and Papa Nana on the matters that they may have to consider in relation to the acceptance decision on their nomination. (10 marks)
Answer
The standard, ISQC 1 provides three main issues to be considered for acceptance of nomination. These are the integrity of the client, the competence of the firm, and ethical requirements.
Matters to consider on the integrity of a client include:
- The identity and business reputation of the client’s principal owners, key management, related parties, and those charged with governance.
- The nature of the client’s operations, including its business practices.
- Information concerning the attitude of the client’s principal owners, key management, and those charged with governance towards matters such as aggressive interpretation of accounting standards/internal control environment.
- Whether the client is aggressive with fixing and maintaining the firm’s fees as low as possible.
- Any indication of an inappropriate limitation on the scope of work.
- Any indication that the client might be involved in money laundering or other criminal activities.
- The reasons for the proposed appointment of the firm and non-reappointment of the previous firm.
Matters to consider on the competence of the audit firm include:
- Knowledge of the relevant industry by the firm’s personnel.
- Experience with relevant regulatory or reporting requirements.
- Personnel with the necessary capabilities and competence.
- Availability of experts if needed.
- Ability to complete the engagement within the reporting time.
Ethical issues include:
- The firm must consider whether acceptance of the nomination will create any conflict of interest or other ethical issues.
- The firm must ensure that the previous auditors have been properly removed in accordance with the law.
- Tags: Client Acceptance, Competence, Ethical Requirements, Integrity, ISQC 1
- Level: Level 3
- Topic: Practice management, Professional responsibility and liability
- Series: MAY 2016
- Uploader: Joseph