Client Acceptance and Continuance
Before accepting a new client or continuing an existing one, the firm performs client acceptance and continuance procedures under ASA/ISA 220 (Quality Management) and the related quality management standards. The objective is to assess whether the firm can accept the engagement without compromising ethics, competence, or independence, and to identify risks (integrity of management, scope limitations, suspicious circumstances, money laundering concerns).
Key procedures include: obtaining knowledge of the client (industry, ownership, management integrity, financial condition); communicating with the predecessor auditor (with client permission) about disagreements, fraud, or reasons for change; checking for independence conflicts; assessing competence and resources (including specialists); and evaluating whether the engagement terms are clear (engagement letter). For continuing clients, review prior-year issues, changes in management or ownership, and whether circumstances have altered the risk profile.
Traps: assuming communication with the predecessor auditor is optional when the client refuses permission (that refusal itself is a red flag); treating acceptance as a one-off rather than an ongoing process; ignoring money laundering or sanctions screening; and failing to document the acceptance decision.
Rule of thumb: if the client refuses permission to contact the predecessor auditor, treat that as a significant integrity concern and consider declining the engagement. Acceptance is a documented, partner-level decision.