What you should be doing to comply with the new competency requirement on client acceptance and retention.

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SMSF Audit and You - Part 1

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What you should be doing to comply with the new competency requirement on client acceptance and retention.

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A number of audit and professional standards stipulate the requirements relating to the acceptance and retention of client engagements. These include, but are not limited to, ASA 210 Terms of Audit Engagements, ASA 220 Quality Control for Audits of Historical Financial Information and ASA 300 Planning an Audit of a Financial Report. Professional statements include APES 110 Code of Ethics for Professional Accountants, APES 305 Terms of Engagement and APES 320 Quality Control for Firms.
APES 320 requires the auditor to (a) consider the integrity of the client and whether information exists to indicate the client lacks integrity, (b) ensure he/she is competent to perform the engagement, and (c) ensure he/she can comply with the ethical requirements of APES 110.

Client integrity

Issues when considering the integrity of the client include: the nature of the trustee’s operations and investments, the trustee’s attitude toward the SIS requirements, the reason for changing auditors or for recurring audits, the past history with the trustees.

For new engagements, evidence to suggest the auditor has considered the trustee’s integrity could be an ethical letter received from the incumbent auditor. The auditor could also document the nature of the fund’s operations and investments based on discussions with the trustee(s) and a review of available information. Finally, the reason why the trustee(s) is changing auditor should be documented.

For continuing engagements, evidence could be prior year carried forward review points aimed at drawing to the auditor’s attention any questionable issues associated with the client.

Competence to perform the audit

One way of documenting the auditor’s consideration of competence to perform the audit is to document the understanding of the nature and scope of the engagement. There should also be evidence to show consideration was given to the competence of staff assigned to the audit, perhaps by reference to the firm’s staff profiles. Finally, for recurring audits, any changes to the prior year that could impact the firm’s ability to perform the audit should be documented. The table below provides an example of how this mandatory requirement may be addressed.

Compliance with ethical requirements

In adhering to APES 110, members are required to ‘identify threats to compliance with the fundamental principles, to evaluate their significance and, if such threats are other than Clearly Insignificant to apply safeguards to eliminate or reduce the threat to an acceptable level’.

The below table is designed to assist members meet the requirements of APES 110. The table should be completed prior to accepting new client engagements or continuing with existing engagements.

Engagement letters

Upon deciding to accept the engagement, in accordance with ASA 210 Terms of Audit Engagements and APES 305 Terms of Engagement, the auditor and client must agree upon and document their understanding of the terms of the engagement. This may be through issuing an engagement letter which includes the minimum requirements of these two standards. At a minimum, the engagement letter should identify the applicable financial reporting framework and Relevant Statutory Requirements.
For recurring audits, a new engagement letter is generally only required should circumstances warrant, for example, a misunderstanding between the auditor and client, revised terms of the engagement or legal or regulatory requirements.

Disclaimer: The contents contained herein this article are intended as guidance only. Adherence to such does not guarantee compliance with all mandatory legislative and professional standards. WPIAS Training Academy strongly recommends you take time to familiarise yourself with all relevant professional and legislative obligations prior to undertaking any audit.

Ashley Course is director of WPIAS Training Academy Pty Ltd. WPIAS’ objective is to provide the most practical Audit training in the market in the areas of SMSF, Trust Account and SME audits. WPIAS’ aim is to train auditors ‘How To’ audit in accordance with all mandatory requirements.

Threats	Evaluation	Safeguard
Integrity*
Nil Identified	Not Applicable	Not Applicable
Objectivity
We prepared the SMSF Financial Report. Auditing such would threaten independence.	Represents a significant threat to compliance with the fundamental principle of objectivity.	Threat is so significant that no safeguard would mitigate the threat therefore the audit must not be accepted.
Professional Competence & Due Care*
Audit fee is potentially too low to enable firm to perform the audit in accordance with all applicable technical and professional standards. Staff assigned to audit may lack the expertise and competence to perform the audit due to the scope and nature of the engagement.	Represents a significant threat to compliance with the fundamental principle of professional competence and due care. Represents a minor threat to Professional Competence and Due Care.	Audit must be reviewed by partner for compliance with technical and professional standards. Declaration to be signed by audit partner and staff confirming compliance with all applicable technical and professional standards. Ensure staff profiles are considered before allocating staff to audit to ensure staff possessing the requisite competence are assigned the audit. Engagement partner to review work of subordinates prior to signing audit report.
Audit fee is based on a fixed fee arrangement. Firm may not be able to perform the audit in accordance with all applicable technical and professional standards for the fixed price should unexpected issues arise.	Represents a significant threat to professional competence and due care.	Ensure all engagement letters include a clause stating the fixed fee is based upon the audit firm receiving all required information on a timely basis and that all information provided in the initial discussion was accurate at that time. Should circumstances arise different to those known at the time, the audit firm reserves the right to charge additional fees at the firm’s normal hourly rates.
Confidentiality*
Nil Identified	Not Applicable	Not Applicable
Professional Behaviour*
Nil Identified	Not Applicable	Not Applicable

* Performed if threat to objectivity was ignored and engagement subsequently considered.

Ashley Course
Director
WPIAS Training Academy Pty Ltd