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Obtaining and accepting professional appointments - Coggle Diagram
Obtaining and accepting professional appointments
Reasons of the change of auditors
Terms has expired
Auditors do not have enough resources due to client's restructuring project
Auditors do not agree with management decisions
Auditors have come across situations which force them to withdraw from the existing engagement
Advertising, publicity and obtaining professional appointments
Advertising
Allowed
However, the ACCA Code states that any ads or promotional material shall not reflect adversely on the professional accountant, ACCA or the accountancy profession
Ads and promotional materials should not
Bring ACCA into disrepute or bring discredit to the professional accountant, firm or the profession
Discredit the services offered by others whether by claiming superiority
Be misleading
Fall short of any local regulatory or legislative requirements
Fees
It is risky for an accountant to refer to fees in advertising
If there is about fees, the basis of calculation should be clearly stated (hourly and other charging rates)
The greatest care should be taken not to mislead potential clients, particularly if comparing fees with competitors
Any reference to fees must be factual and the accountant must be able to justify it
No unfavourable reference made to competitors
It is appropriate to advertise free consultation to discuss fee issue, thus can avoid risk of confusion
Tendering
Why a tender is put up?
There is an open invitation to tender
The firm has been approached by a prospective client, and the firm is capable to go for it
Whether or not it wants the work?
Consideration
Risk attaching client
Why has the approach arisen - whether first year or change of auditors
Whether client has future plans - growth, restructure
What the client expect from the audit firm?
Can the firm afford to spend time on the proposal
Does the proposed timetable for the work fit with the current work plan
Does the firm have suitable personnel available
Where will the work be performed and is it accessible/cost effective
Are non-accounting specialist skills necessary
Will staff need further training to do the work, if so, what is the cost
If the audit firm wants the tender, then it has to make proposal document
Contents of proposal documents
The format of tender proposal will depend on
Circumstances
Prospective client's requirements
Other matters
Fee and details of how it has been calculated
Assessment of the requirements of the prospective client
Outline of how the firm proposes to address those requirements for the fee
Assumptions made, for eg, regarding deadlines or availability of info
Proposed approach to the engagement
Outline of the firm and the staff involved
If the tender is being submitted to existing clients, some of the info may be unnecessary
However, if it is a competitive tender, even if the info has already been given prior, they may sill be submitted again to ensure that the tender is comparable to competitors
Criteria which might be used to evaluate the tender (used by clients)
Location
Personal knowledge of the partners and staff
Prior experience of the industry or of a similar sized business
Matching service offered to the specific needs of the business
Communication, including prior agreement of the impact on fees before any additional work is undertaken
Development of an effective relationship between client and the key member of the audit team
UK Co Act 2006 requirements
For listed companies
An auditor must always submit a statement of circumstances when they cease to be auditor, even where it is unnecessary
For private company/ unlisted public company
No SOC is required
Auditor leaves because the term has ended
SOC is required
Auditor leaves before term is expired, unless the reason for leaving is 'exempt reasons' such as the client does not require an audit anymore
Fees
ACCA Code of Ethics and Conduct
Fair and reasonable
Basis of charging should be mentioned in the engagement letter
Cannot be accepted
Fees charged on contingency, percentage or similar basis
Can be accepted
Commission paid and received as a result of recommendations from and to clients, as long as adequate safeguards exists
Usually full disclosure will suffice
Fee disputes
This may arise if clients feel like the fee charged is excessive
If there is any increase in fee, the audit firm should explain the reason first
If there is no change in size, over time, the fees would fall due to
Time spent on the audit will reduce as understanding of auditor has improved
Client's systems and procedures should be fully documented in the first year. However, in subsequent years, auditors would only need to update any changes, so less time consuming
The first year is generally high risk due to lack of knowledge, hence, there needs to be more senior audit staff. In subsequent years, the risk should fall, hence, can use junior staff which is cheaper
Lowballing
Setting initial audit fee low in order to win the client
ACCA's guidance on quotation states that it is not improper to secure work by quoting a lower fee, so long as:
The client has not been misled about the level of work that the fee represents
Audit quality is not compromised
Ethical implications
As the fee is low, the audit firm needs to retain the client for a number of years in order to recover its initial losses, hence independence will be impaired via self- interest threat as the they do not wish to lose the client
Professional competence and due care may not be applied if the fee is so low hence adequate levels of quality control cannot be displayed
Unprofessional because it means that smaller practices cannot compete
Acceptance and continuance
Issues arise when tender has been accepted
Technical competence
Sufficient resources
Ethical or independence issues
Risk associated with new clients, such as money laundering or potentially becoming POLITICALLY EXPOSED PERSON (firms that is being observed due to willful act)- hence, bring threat to the audit firm's reputation
Terms of engagement been discussed and agreed prior to accepting the appointment
Has the auditor obtained references for the entity's directors
Professional clearance from the outgoing auditors
How come the auditor has sent proposal but then choose not to proceed after they have won the tender
The time between submission and job offer, factors may have emerged that might mean that they are less keen to continue.
Since they have proposed to several more clients, they would want to choose the one that fits their circumstances at that time
Terms of audit engagements
Objective of auditor
Accept or continue an audit engagement only when the basis on which it is to be performed has been agreed though:
Establish whether the preconditions for an audit are present, and
Management's use of acceptable FR framework in the preparation of FS
Auditor would ensure the FS are fairly presented
Ensure that IC are sufficient to address MM due to fraud or error
Ensure auditor has been provided with access to all the evidence they require for their opinion
Management's and TCWG's agreement to the premise on which an audit is conducted
Preconditions will be confirmed in the engagement letter
Confirming that there is a common understanding between auditor and management and, where appropriate, TCWG of the terms of the audit engagement
Descriptions of practising firms, only as description, not as part of its registered practice name
Chartered Certified Accountant
At least half the partners are ACCA members
Those partners hold at least 51% of voting rights under the partnership agreements
Registered Auditors
A firm which holds a firm's auditing cert from ACCA
Members of the Association of Chartered Certified Accountants
A firm in which all partners are Chartered Certified Accountants