Thomas Forehand, Cpa

Topics: Crime, Morality, Risk Pages: 3 (888 words) Published: June 17, 2012
1. What professional standards are relevant to client acceptance decisions? What general principles do these standards suggest accounting firms should apply in arriving at client acceptance decisions? Identify specific measures that accounting firms should take before deciding to accept a potential client. PCAOB AU Section 301.07 is relevant to the client acceptance decision because it states that “the auditor should establish an understanding with the client regarding the services to be performed for each engagement. Such an understanding reduces the risk that either the auditor or the client may misinterpret the needs or expectations of the other party.” AICPA SAS 84 is relevant to the client acceptance decision because it states that "Communications between Predecessor and Successor Auditors" section 315.09 states that the [successor] auditor should make specific and reasonable inquiries of the predecessor auditor regarding matters that will assist the successor auditor in determining whether to accept the engagement. Matters subject to inquiry should include information that might bear on the integrity of management.” SAS 109 “Understanding the Entity and Its Environment and Assessing the Risks of Material Misstatement” deals with obtaining a sufficient understanding of the entity and its environment in addition to the risk prior to accepting an engagement. The basic underlying principle that should be applied in arriving at client acceptance decisions is to know your client; know the nature of the business, and the risks involved. For new clients, the accounting firms can obtain information about the client's management by inquiring of knowledgeable persons within the community. For a returning client, the accounting firm should consider prior experiences with the client's management. Any occurrences of material errors or irregularities, illegal acts, and untruthful answers to inquiries should be carefully considered. The AICPA recommended the use of an...
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