One of the most critical components of professional competence is ensuring that a Professional Accountant, including an auditor, does not agree to function in a capacity they do not have the necessary level of professional competence to carry out.
This principle should be adhered to by all professional accountants, regardless of whether they perform their duties as auditors; it is of the utmost significance.
When a prospective client inquires about engaging the services of a professional accountant, that professional accountant has a responsibility to ensure that they have the necessary resources at their disposal and that they are technically and professionally competent to carry out the work on behalf of the prospective client.
When deciding whether or not to accept an engagement, a professional accountant has an additional responsibility to examine whether or not doing so would pose a risk to the accountant's ability to comply with fundamental principles.
For instance, the professional accountant would assess if the possible customer is participating in any unlawful or unethical activities and whether the potential client has complex financial reporting procedures (which may give rise to unorthodox practices).
When a professional accountant finds such threats to the essential principles, that professional accountant has a responsibility to investigate whether or not such threats may be mitigated to an acceptable degree.
When such threats cannot be eliminated or mitigated to an acceptable degree, a professional accountant must turn down the opportunity to perform the work.
Suppose such threats do not exist or threats to the fundamental principles have been reduced to an acceptable level. In that case, the professional accountant must ensure that the services they have been asked to perform by the client can be performed competently by the firm.
If the practice is a firm, the engagement partner is responsible for ensuring that the firm has the required employees to service the client, which means that the staff have the technical knowledge and capacities to handle the client's business expertly.
In addition, the firm needs to ensure that its employees have an adequate awareness of the nature of the client's business and the environment in which the client operates.
The professional accountant should also examine issues, such as the complexity of the entity's operations and establish a knowledge of the nature and extent of the job to be completed.
This is another responsibility that falls on the professional accountant.
Clients involved in specialist entities may expect the audit firm to ensure that they have the people available (or source such staff) to deal with such specialisms professionally.
This may require the assistance of specialised personnel (for example, where the reporting entity has complex financial instruments which require annual fair value assessments to be carried out, such as derivative financial instruments).
In situations like this, the audit engagement partner is responsible for ensuring that they have the resources available to handle any issues that may arise due to the audit.
When the client has asked the professional accountant to act for them concerning their financial reporting (accounting) requirements, the professional accountant should ensure that both the accountant and the client have a realistic timeframe to undertake the work.
The professional accountant must consider any deadlines placed on the client they are auditing.
For instance, the client may be required to submit their financial statements to a regulatory body by a specific date following the end of the financial year.
In these circumstances, the professional accountant should examine if they can meet such deadlines to prevent the client from being subjected to any penalty levied against them by regulatory agencies for missing deadlines.
Following the acceptance of the engagement, the incoming professional accountant will often need to start conversations with the outgoing firm of accountants to get some facts (the client has permitted to enter into the such dialogue).
The incoming professional accountant will typically inquire of the outgoing professional accountant as to whether there is anything, be it professional or otherwise, that needs to be brought to the attention of the incoming professional accountant to assist them in deciding whether or not to accept the engagement.
Other pertinent legal and regulatory criteria may vary from country to jurisdiction that regulates such requests.
How does the Auditor deal with Conflicts of Interest?
A professional accountant needs to be aware that there is always the potential for a conflict of interest between different clients.
This is something that they need to be aware of at all times.
The firm should ensure that they have procedures that deal with conflicts of interest, which will generally involve notifying the client of a conflict of interest and seeking their consent to act for the other client in such circumstances.
The firm should also ensure procedures for employees having conflicts of interest. If the professional accountant is not given consent, they have a duty not to act for the party or parties that caused the conflict of interest in the first place, nor do they have the right to continue acting for those parties.
Some precautions need to be taken when there is a potential conflict of interest.
The construction of so-called "Chinese walls," which requires employing different engagement teams, maybe one method of implementing such precautions.
When utilising different engagement teams, each team is obligated to maintain confidentiality.
The firm should also regularly review the safeguards employed at the firm level.
A senior official not associated with the relevant client engagements should look over these measures to ensure they are adequate.
In certain circumstances, conflicts of interest can threaten one or more guiding principles. In situations where this threat cannot be eliminated or reduced to a level deemed acceptable, the professional accountant has a responsibility not to accept the assignment.
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