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How Can a Client Acceptance Form Save Time on Audits?

Oct 23rd 2010
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You know the form.  It’s the one we pull out of the prior year’s documentation, initial and date and insert in the current year’s file only to be viewed again when the next year rolls around.  We know approving client acceptance and continuance is required by the AICPA Quality Control Standards but this is only a compliance function.  Right?  Actually, there can be significant time-saving benefits when the information on a properly designed form is integrated into our audit planning.

What information should a good client acceptance and continuance form contain?

1. Basic organizational data—legal name, EIN, names of owners and affiliates, officers and directors, attorneys and bankers contact information.
2. Basic operational information—business locations, source of revenues and recognition methods, financing sources, compensation methods and benefit plans, laws or statutes that directly affect the organization.
3. Information affecting risk of material misstatement at the financial statement level—integrity of management, use of financial statements, going concern problems.

How can we use this information to save time?

1. The basic organizational and operational information can be combined with information obtained from reading the general ledger, documenting internal control and other engagement planning activities to achieve an understanding of an entity and its environment as required by SAS No. 109.  On small audits other practice aids may not be necessary.

2.  At the financial statement level, risk of misstatement may be less than high when management’s integrity is good, financial statements are not being used for high risk purposes and there are no significant going concern problems.  Risk less than high at the financial statement level will yield a higher tolerable misstatement and a higher lower limit for individually significant items.  As a result, fewer account balances, general journal entries and unusual matters will require auditing procedures.

The requirements of quality control standards were not intended to be considered compliance functions.  Their purposes were to improve the quality of audit evidence and to enable auditors to collect and document evidence in the most efficient manner. When practice aids can be eliminated, and when fewer auditing procedures are required, time savings can be significant, even on smaller audits!   

If you’d like a free copy of my illustrative Client Acceptance and Continuance Form, visit my website, , and sign up for our free email newsletter.


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