Before accepting new client relationship, a auditor should consider whether acceptance would create any threats to compliance with fundamental principles. Potential threats to integrity or professional behaviour may be created from, for example, questionable issues associated with client (its owners, management and activities).
Client issues that if known, could threaten compliance with the fundamental principle include, for example:
Client involvement in illegal activities (such as money laundering, fraud, dishonesty, or questionable financial reporting practices)
The significance of any threats should be evaluated. If identified threats are other than clearly insignificant, Safeguards should be considered and applied as necessary to eliminate or reduce them to acceptable low level. Appropriate safeguard may include:
- Obtaining knowledge and understanding of the Client, its owners, managers and those responsible for its governance and business activities.
- Securing the client’s commitment to improve corporate governance practices or internal controls.
- Where it is not possible to reduce the threats to acceptable low level, auditor should decline to enter into the client relationship.
- Acceptance decisions should be periodically reviewed for recurring client engagements.