The entire goal of this "pre-acceptance phase" is risk management for the audit firm. Before committing to an audit, the firm must ask two fundamental questions:
Can we and should we do this audit? (Is it feasible and a good business decision?)
Is a proper audit even possible? (Has the client laid the necessary groundwork?)
1. Client Acceptance and Continuance (The "Should We?" Check) ✅
This step is about the audit firm evaluating the client (and itself) to see if the engagement is a good fit. Think of it as the firm doing its own due diligence.
Firm's Ability to Meet Deadlines & Staff the Engagement: Do we have the time and people to do this job properly? A high-quality audit can't be rushed or done by an inexperienced team.
Independence: Are we ethically and legally allowed to do this audit? We must be independent in both fact and appearance. We can't audit a company if our firm's partner is married to its CEO, for example.
Integrity of Client Management: Is the client's management honest and trustworthy? This is the single most important factor. If management is shady, the risk of fraud and reputational damage to the audit firm is immense. No fee is worth that risk.
Group Audits: If the client is a large parent company with many subsidiaries, is the engagement too complex for us to handle effectively?
🧠 How to Remember: Think of the firm asking about the "FIRM" itself.
Feasibility: Do we have the staff and time?
Independence: Are we ethically permitted?
Risk: Is management's integrity a problem?
Multi-component: Is it a complex group audit?
2. Preconditions for an Audit (The "Is it Possible?" Check) 📋
This step ensures that the fundamental requirements for an audit are in place. If these conditions aren't met, you can't perform an audit according to standards, no matter how much you want the client.
Applicable Financial Reporting Framework: Management must use an acceptable set of rules (like GAAP or IFRS) to prepare its financial statements. You can't audit a game without a rulebook.
Management Responsibilities: Management must understand and agree in writing that they are responsible for three key things. The auditor's job is to check their work, not to do it for them.
FS (Financial Statements): Preparing the statements.
IC (Internal Control): Designing and implementing controls to prevent/detect errors and fraud.
Access: Providing the auditor with unrestricted access to all information and personnel.
Management-Imposed Scope Limitation: If, before even starting, management says, "You can't look at our inventory" or "You can't talk to our general counsel," this is a major red flag. This limitation is a deal-breaker, and the firm should not accept the engagement.
🧠 How to Remember: Think of it as the "Three Promises" management must make. They must promise they used a Framework, they did their own Responsibilities (FS, IC), and they will give you full Access.
3. Communication With the Predecessor Auditor (The "What's the Gossip?" Check) 🗣️
For a new audit client (initial audit), this is a mandatory step. Think of it as calling the previous tenant to ask about the landlord before you sign the lease. It provides invaluable insight. The new (successor) auditor must initiate this communication.
Important: The new auditor needs the client's permission to speak with the old auditor due to confidentiality rules. If the client refuses, consider it a huge red flag.
The five key questions are designed to uncover risks:
Management Integrity: "Did you have any reason to doubt the honesty of the managers?"
Disagreements: "Did you argue with them about accounting rules or how the audit should be done?"
Reason for Change: "Why do you think they switched auditors?"
Fraud/Noncompliance: "Did you find any fraud or illegal acts you had to report to the board?"
Related Parties/Unusual Transactions: "Did you find any weird or complex transactions, especially with related companies or people?"
🧠 How to Remember: Think of asking the previous auditor for the "DIRT".
Disagreements
Integrity issues
Reason for change
Trouble (Fraud, Noncompliance, Related party issues)
Your special note is spot on:
Before Accepting: You have these required conversations (inquiries).
After Accepting: You can ask for their workpapers to get a head start on understanding things like contingencies or internal controls. You would never get their engagement letter, as that's a private contract between them and the client.
【反向拷问】
Your framework presents these steps as a clear checklist. But what happens when these factors conflict? For instance, if a highly prestigious and lucrative client wants to hire your firm, but the predecessor auditor mentions "minor disagreements" over aggressive, but not fraudulent, accounting policies. Do you automatically walk away, or does the potential reward justify accepting a higher-risk engagement?
【拓展思考】
Beyond this standard framework, consider the impact of behavioral economics on the "continuance" decision. It's often psychologically harder to fire an existing client than it is to reject a new one due to "commitment bias" and established personal relationships. An auditor might rationalize keeping a client whose risk profile has worsened over time, whereas they would have rejected that same client if they were coming in fresh. This highlights why the annual continuance decision must be just as rigorous as the initial acceptance process, yet often isn't.
你可能想知道:
What specific procedures should an auditor perform if the predecessor auditor refuses to respond to the inquiry?
Explain the key differences between an audit engagement letter and a management representation letter.
How do these pre-acceptance procedures change for a review or compilation engagement versus an audit?
视频信息
答案文本
视频字幕
The pre-acceptance phase is a critical risk management tool for audit firms. Before committing to any audit engagement, firms must systematically evaluate whether they can and should perform the audit, and whether the necessary conditions exist to conduct a proper audit. This evaluation involves three key components: client acceptance decisions, verifying audit preconditions, and communicating with predecessor auditors.
Client acceptance and continuance represents the first critical checkpoint. The audit firm must evaluate its own capabilities, ensuring it can meet deadlines with qualified staff. Independence must be verified both in fact and appearance. Most importantly, management integrity must be assessed, as this is the single most critical factor. High management integrity with low risk leads to acceptance, while low integrity with high risk requires rejection.
Preconditions establish whether an audit is even possible. Management must use an applicable financial reporting framework like GAAP or IFRS. They must acknowledge responsibility for preparing financial statements, designing internal controls, and providing unrestricted access to information and personnel. Any management-imposed scope limitations before the audit begins are major red flags that typically require rejecting the engagement.
Communication with the predecessor auditor is mandatory for new audit clients. The successor auditor must initiate this communication and obtain client permission due to confidentiality rules. If the client refuses permission, this is a major red flag. The inquiry focuses on five key areas remembered as DIRT: disagreements with management, integrity issues, reason for the auditor change, and any trouble such as fraud or noncompliance issues.
The FIRM framework provides a systematic approach to client acceptance decisions. Feasibility ensures the audit firm has adequate staffing and can meet deadlines. Independence requires both ethical compliance and maintaining proper appearance. Risk assessment focuses on management integrity, which is the most critical factor in the decision. Multi-component evaluation addresses the complexity of group audits with multiple subsidiaries or locations.
Audit preconditions establish the foundation for a proper audit. Management must make three critical promises. First, they must use an acceptable financial reporting framework like GAAP or IFRS. Second, they must acknowledge their responsibilities for preparing financial statements, designing internal controls, and providing unrestricted access to all information and personnel. Third, they cannot impose scope limitations before the audit begins, as this would be a deal-breaker requiring engagement rejection.
Predecessor auditor communication is mandatory for new clients and follows a structured process. The successor auditor must first request client permission due to confidentiality requirements. Once permission is granted, the inquiry focuses on DIRT: disagreements with management over accounting or audit matters, integrity issues regarding management honesty, the reason for the auditor change, and any trouble such as fraud, noncompliance, or related party issues discovered during the previous audit.
Effective implementation requires integrating all three frameworks into a comprehensive pre-acceptance process. The FIRM framework evaluates client suitability, the Three Promises ensure audit feasibility, and DIRT communication reveals hidden risks. All factors feed into the final accept-or-reject decision. Critically, annual continuance evaluations must apply the same rigorous standards as initial acceptance decisions to avoid commitment bias and maintain audit quality.