Pre-Engagement Activities PDF

## PRE-ENGAGEMENT ACTIVITIES ### LO 3-1 List and describe the required pre-engagement activities that auditors undertake before beginning an audit engagement. Public accounting firms try to reduce their own business risks by carefully managing their audit engagements. To do so, public accounting...

## PRE-ENGAGEMENT ACTIVITIES ### LO 3-1 List and describe the required pre-engagement activities that auditors undertake before beginning an audit engagement. Public accounting firms try to reduce their own business risks by carefully managing their audit engagements. To do so, public accounting firms undertake several activities before beginning any audit engagement. In general, these activities can be called risk management activities. Risk in an audit engagement generally refers to the probability that the firm could issue a clean, unmodified audit opinion when in fact a material misstatement does exist in the financial statements and the opinion should have been modified. Because of the importance of these activities, professional standards state that the auditor should perform the following activities: - perform procedures regarding the acceptance or continuance of the audit client relationship. - determine compliance with independence and ethics requirements. - reach a contractual understanding with the client for the terms and conditions of the audit engagement. Each of these areas is now discussed. ### Client Acceptance or Continuance An important element of a public accounting firm's quality control policies and procedures is a system for deciding whether to accept a new client and, on a continuing basis, whether to continue providing services to existing clients. Public accounting firms are not obligated to accept undesirable clients, nor are they obligated to continue to serve clients when relationships deteriorate or when the management comes under a cloud of suspicion. The process activities are clearly focused on understanding and managing risk to the audit firm. In fact, to mitigate their business risk, public accounting firms devote substantial time to make sure that the audit clients that they serve do not become the focus of the next big accounting scandal.