1. 602.1 The authors recommend that
    the auditor document the considerations discussed in the preceding
    section as they are made during the proposal, pre-engagement, or early
    planning stages. The documented information about independence, ability
    to provide
    • the requested service, and
    • management integrity will provide a basis for the auditor's decision
    • about whether to accept or retain the client. Other information on the
    • type of CIRA, common properties managed, managing agent, etc., will be
    • useful in later stages of the audit and will serve as a basis for review
    • and update in future years. When performing client acceptance (and
    • continuance) procedures, the auditor should be alert for risks that
    • could result in misstatements at the financial statement level and at
    • the relevant assertion level for classes of transactions, account
    • balances, and disclosures, including how identified issues were resolved
    • if the firm decides to accept or retain the client.
  2. 602.2 The “Engagement Acceptance Form” at HOA-CX-1
    provides space for information about the services requested and the
    considerations of independence, management integrity, and other matters
    that influence the decision to accept or retain an engagement
    • The form also provides space to document the acceptance or retention
    • decision, including how identified issues were resolved if the firm
    • decides to accept or retain the client.
  3. Annual Evaluation for Continuing Engagement

    An annual evaluation of clients and engagements should be performed as
    part of the planning process for those engagements.
    • As mentioned in paragraph 601.1, SQCS No. 7 (QC 10) and SAS No. 108 (AU 311)
    • require the firm to assess its continuing association with a client and
    • the engagement. The continuing auditor should consider the topics
    • discussed in this chapter and reassess the desire and ability to retain
    • the engagement. This reassessment is especially important if there has
    • been a high degree of turnover in key management positions. Other
    • reasons to reevaluate whether to continue serving the client include
    • significant changes in financial position, litigation status, general
    • economic conditions, scope of the engagement, auditor independence, or
    • other considerations that would have caused the auditor to reject the
    • client had the conditions existed at the time of the original
    • acceptance. Moreover, industry risk factors and other considerations may
    • have changed since the initial client acceptance decision. The
    • assessment should also consider matters such as (a) being aware of
    • potential legal liability risks, (b) avoiding conflict of interest
    • problems, and (c) monitoring compliance with independence rules. For
    • example, the continuance decision of a CIRA's auditor may be affected
    • when the association's management company changes. Such a situation may
    • occur when the management company moves outside of the auditor's
    • geographic area, the auditor is unfamiliar with the new management
    • company, or the auditor has worked unsuccessfully with the particular
    • management company in the past.
  4. 602.6 Once a client relationship
    has been established, the firm has more objective information to use in
    evaluating and reassessing the conclusions reached for each factor
    considered when the initial client acceptance decision was made. The
    review of factors affecting the continuance decision should be made in
    light of the increased knowledge about the client obtained from the
    prior audit(s) and
    • consideration of changes that have occurred since the prior audit. SAS No. 108 (AU 311)
    • indicates the auditor should perform this review at the beginning of an
    • engagement to ensure that no circumstances have occurred since the last
    • engagement that would cause the firm to discontinue providing services
    • to the client. A decision to discontinue services to a client should be
    • made before work commences on the engagement.
  5. 602.7 The continuance decision
    should be documented by signing off the appropriate program steps in the
    general planning procedures audit program at HOA-AP-1.
    • The sign-off should be done during the planning stage of the current
    • year engagement. The steps instruct the auditor to complete or update
    • the “Engagement Acceptance Form” at HOA-CX-1.1 or “Engagement Continuance Form” at HOA-CX-1.2 to document the client continuance decision. The review of HOA-CX-1.1 or completion of HOA-CX-1.2
    • is not required by professional standards. However, the authors believe
    • the review or completion of either form for the purpose of the
    • engagement continuance decision is important and should not be ignored.
Card Set
Documenting the Engagement Acceptance or Retention Decision