Acca aaa s21 Notes

September 2021 to June 2022 exams
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4. Before you say ‘yes’ (and continuance decisions)
It is, of course, flattering to be asked to be the auditor of a company. Now only does it feed one’s ego, 
it also promises more income for the firm. However, auditors must exercise great caution: they must 
be confident that they can carry out the work profitably, ethically, competently, incurring an 
acceptable level of risk and avoiding damage to their reputation.
The following need to be investigated:
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Are they professionally qualified to act? Is it legal and ethical for them to do so? For example, 
they shouldn’t accept an appointment if the fees exceed the 15% limit for public interest 
companies, unless there are adequate safeguards. Are there issues of familiarity or self-review?
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Do they have adequate resources in terms of staff, time and expertise? Can the new work be 
carried out when the client wants without adversely affecting existing clients? If the potential 
audit client acts in a specialist area of business and the auditors have no prior experience of that, 
it would be very unwise for them to accept the appointment.
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Investigate the client, its management and directors. Many firms of auditors have access to 
databases which, for example, will allow them to search on directors’ names to see if any of the 
directors have been banned from being directors of companies because of their past behaviour. 
They may discover that it is too risky to become the auditor of a company if they have no trust in 
the honesty of the directors. The audit fee is often modest, why risk your reputation by 
undertaking an audit where the directors may be fraudulent? 
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Consider the nature of the industry or business. If there is a risk of criminal involvement or 
money laundering it might be better to stay clear.
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Money laundering regulations (covered in a later chapter) require auditors to ‘know their client’: 
ownership, commercial rationale, sources of funds etc.
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Communicate with present auditors. There is a professional requirement to do this and it is 
essential to find out why the old auditors are retiring or being removed.
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Consider