Reflection Paper
Essay by John Lightsey • January 19, 2017 • Essay • 801 Words (4 Pages) • 1,063 Views
Page 1 of 4
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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