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Reflection Paper

Essay by   •  January 19, 2017  •  Essay  •  801 Words (4 Pages)  •  1,063 Views

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Rood Notes

  • Establishing sound client acceptance procedures can lead to better liability risk management and can contribute to a firm’s sustainable growth/long-term profitability
  • Basic Steps for all clients and engagements
  • Evaluate prospective client integrity
  • Personally meet the client
  • Reference the client/obtain credit history
  • Perform engagements with professional competence
  • Consider whether:
  • The service can be performed by the firm
  • The engagement is consistent with the firm’s vision or business plan
  • The firm has enough resources to meet the needs of the client
  • Consider risks related to the particular engagement
  • Higher-risk engagements
  • The firm should consider:
  • Performing a background check of key member’s within the client’s company
  • Review the entity’s public records
  • Interview selected employees
  • Perform a detailed review of previous financial statements
  • Including reasons for any delays in issuance or restatements
  • History of changes in CPA firms.
  • Perform a detailed review of previous tax returns, audit results, and other tax issues
  • Formalize the process
  • Firm should develop a checklist to document decision-making
  • If the firm is larger, then there may be an establishment of a new client acceptance committee
  • Firms should develop a client prototype
  • This can be used to compare a prospective client and determine if they are a good fit for the firm
  • Lastly, an engagement letter should be drafted and then reviewed by the acceptance committee before being sent to the client
  • Continuing clients
  • If a client continues to use the firm’s services, then they should be evaluated annually to track any changes in upper level management or financial environment.

Eilifsen & Messier

  • Examined the materiality guidance for 8 of the largest US public accounting firms.
  • Results:
  • A high level of consistency in terms of quantitative benchmarks to determine overall materiality
  • Income before taxes, total assets or revenues, and total equity
  • Differences were found in how the firms consider the possibility of undetected misstatements when evaluating detected misstatements.
  • The material guidance was analyzed by coding the data along six research questions
  • Then each firm reviewed the coding for accuracy and completeness.
  • Overall
  • Question 1-4 deal with the basi application of materiality on an audit for planning purposes and there was a significant amount of agreement between the firms on benchmarks and percentages applied to the benchmarks when establishing materiality.
  • There was substantial agreement between the firms on how to determine tolerable misstatement
  • Most firms use a 50-75% range.
  • There is also agreement on what constitutes a trivial misstatement
  • 3-5% of overall materiality
  • The results show that the firms require the following:
  • All misstatements that are not clearly trivial should be posted to a summary of unadjusted misstatements and management is requested to correct all accumulated misstatements.
  • All misstatements for public companies are evaluated using the dual method and there is some variability in how to handle such misstatements for nonpublic companies.
  • All of the firms provide guidance for offsetting detected misstatements.
  • Qualitative factors are to be considered in determining the materiality of uncorrected misstatements.
  • There are differences in the firms’ guidance when evaluating uncorrected misstatements and considering the possibility of additional undetected misstatements.
  • Material misstatements detected during the audit should be brought to management’s attention immediately.
  • The results show that the firms’ guidance closely follows existing auditing standards in relation to how the firms handle materiality in group audits.

Messier (Analytical procedures)

  • K

Gendron (Canadian client-acceptance decision-making)

  • K

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