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Preliminary engagement activities there are generally

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Unformatted text preview: .indd mes25435_ch01_001-032.indd 19 26/05/11 9:24 PM Confirming Pages 20 Part 1 Introduction to Assurance and Financial Statement Auditing Client Acceptance/Continuance Professional standards require that public accounting firms establish policies and procedures for deciding whether to accept new clients and to retain current clients. The purpose of such policies is to minimize the likelihood that an auditor will be associated with clients who lack integrity. If an auditor is associated with a client who lacks integrity, the risk increases that material misstatements may exist and not be detected by the auditor. This can lead to lawsuits brought by users of the financial statements. For a prospective new client, the auditor is required to confer with the predecessor auditor and the auditor frequently conducts background checks on top management. The knowledge that the auditor gathers during the acceptance/continuance process provides valuable understanding of the entity and its environment, thus helping the auditor assess...
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