About Me
CPA
1 Regulation (REG)
1.1 Ethics, Professional Responsibilities, and Federal Tax Procedures
1.1 1 Professional ethics and responsibilities
1.1 2 Federal tax procedures and practices
1.1 3 Circular 230
1.2 Business Law
1.2 1 Legal rights, duties, and liabilities of entities
1.2 2 Contracts and sales
1.2 3 Property and bailments
1.2 4 Agency and employment
1.2 5 Business organizations
1.2 6 Bankruptcy
1.2 7 Secured transactions
1.3 Federal Taxation of Property Transactions
1.3 1 Basis determination and adjustments
1.3 2 Gains and losses from property transactions
1.3 3 Like-kind exchanges
1.3 4 Depreciation, amortization, and depletion
1.3 5 Installment sales
1.3 6 Capital gains and losses
1.3 7 Nontaxable exchanges
1.4 Federal Taxation of Individuals
1.4 1 Gross income inclusions and exclusions
1.4 2 Adjustments to income
1.4 3 Itemized deductions and standard deduction
1.4 4 Personal and dependency exemptions
1.4 5 Tax credits
1.4 6 Taxation of individuals with multiple jobs
1.4 7 Taxation of nonresident aliens
1.4 8 Alternative minimum tax
1.5 Federal Taxation of Entities
1.5 1 Taxation of C corporations
1.5 2 Taxation of S corporations
1.5 3 Taxation of partnerships
1.5 4 Taxation of trusts and estates
1.5 5 Taxation of international transactions
2 Financial Accounting and Reporting (FAR)
2.1 Conceptual Framework, Standard-Setting, and Financial Reporting
2.1 1 Financial reporting framework
2.1 2 Financial statement elements
2.1 3 Financial statement presentation
2.1 4 Accounting standards and standard-setting
2.2 Select Financial Statement Accounts
2.2 1 Revenue recognition
2.2 2 Inventory
2.2 3 Property, plant, and equipment
2.2 4 Intangible assets
2.2 5 Liabilities
2.2 6 Equity
2.2 7 Compensation and benefits
2.3 Specific Transactions, Events, and Disclosures
2.3 1 Leases
2.3 2 Income taxes
2.3 3 Pensions and other post-retirement benefits
2.3 4 Derivatives and hedging
2.3 5 Business combinations and consolidations
2.3 6 Foreign currency transactions and translations
2.3 7 Interim financial reporting
2.4 Governmental Accounting and Not-for-Profit Accounting
2.4 1 Governmental accounting principles
2.4 2 Governmental financial statements
2.4 3 Not-for-profit accounting principles
2.4 4 Not-for-profit financial statements
3 Auditing and Attestation (AUD)
3.1 Engagement Planning and Risk Assessment
3.1 1 Engagement acceptance and continuance
3.1 2 Understanding the entity and its environment
3.1 3 Risk assessment procedures
3.1 4 Internal control
3.2 Performing Audit Procedures and Evaluating Evidence
3.2 1 Audit evidence
3.2 2 Audit procedures
3.2 3 Analytical procedures
3.2 4 Substantive tests of transactions
3.2 5 Tests of details of balances
3.3 Reporting on Financial Statements
3.3 1 Audit report content
3.3 2 Types of audit reports
3.3 3 Other information in documents containing audited financial statements
3.4 Other Attestation and Assurance Engagements
3.4 1 Types of attestation engagements
3.4 2 Standards for attestation engagements
3.4 3 Reporting on attestation engagements
4 Business Environment and Concepts (BEC)
4.1 Corporate Governance
4.1 1 Internal controls and risk assessment
4.1 2 Code of conduct and ethics
4.1 3 Corporate governance frameworks
4.2 Economic Concepts
4.2 1 Microeconomics
4.2 2 Macroeconomics
4.2 3 Financial risk management
4.3 Financial Management
4.3 1 Capital budgeting
4.3 2 Cost measurement and allocation
4.3 3 Working capital management
4.3 4 Financial statement analysis
4.4 Information Technology
4.4 1 IT controls and security
4.4 2 Data analytics
4.4 3 Enterprise resource planning (ERP) systems
4.5 Operations Management
4.5 1 Strategic planning
4.5 2 Project management
4.5 3 Quality management
4.5 4 Supply chain management
3 1 1 Engagement Acceptance and Continuance Explained

1 1 Engagement Acceptance and Continuance Explained

Key Concepts

Engagement Acceptance

Engagement acceptance refers to the process by which a Certified Public Accountant (CPA) decides whether to take on a new client or engagement. This decision is based on a thorough evaluation of the client's background, the nature of the engagement, and the risks involved.

Example: A CPA firm receives a request to audit a new client. Before accepting the engagement, the firm conducts due diligence to assess the client's financial stability, reputation, and the complexity of the audit.

Engagement Continuance

Engagement continuance involves the ongoing evaluation of whether a CPA should continue providing services to an existing client. This process is essential to ensure that the client remains suitable for the CPA's services and that the risks associated with the engagement are manageable.

Example: A CPA firm has been providing tax services to a client for several years. Periodically, the firm reviews the client's financial situation and compliance history to determine if the relationship should continue.

Risk Assessment

Risk assessment is a critical component of both engagement acceptance and continuance. It involves identifying and evaluating the risks associated with a client or engagement, including financial, reputational, and legal risks.

Example: During the risk assessment for a new client, a CPA firm might consider the client's industry, regulatory environment, and past financial performance to gauge the potential risks involved in the engagement.

Client Acceptance Criteria

Client acceptance criteria are the standards and guidelines that a CPA firm uses to determine whether to accept a new client. These criteria may include the client's financial stability, reputation, and the nature of the services requested.

Example: A CPA firm has a policy that it will not accept clients in high-risk industries unless they meet certain financial and compliance benchmarks. This policy helps the firm manage its risk exposure.

Engagement Letter

An engagement letter is a formal document that outlines the terms and conditions of the engagement between the CPA and the client. It includes details such as the scope of services, fees, and the responsibilities of both parties.

Example: When accepting a new audit client, a CPA firm sends an engagement letter that specifies the audit objectives, the expected timeline, and the fees for the services. This document serves as a reference for both the CPA and the client.

Client Continuance Criteria

Client continuance criteria are the standards and guidelines that a CPA firm uses to determine whether to continue providing services to an existing client. These criteria may include the client's ongoing financial stability, compliance history, and the nature of the services provided.

Example: A CPA firm has a policy to review its client relationships annually. If a client fails to meet the firm's financial stability criteria, the firm may decide to discontinue the relationship to mitigate risk.

Examples and Analogies

Consider engagement acceptance as "vetting a new business partner." Just as you would carefully evaluate a potential business partner's background and reputation, a CPA firm evaluates a new client to ensure a good fit.

Think of engagement continuance as "renewing a subscription." Just as you might review and decide whether to renew a subscription based on its value and relevance, a CPA firm reviews its client relationships to ensure they continue to be beneficial and low-risk.

Risk assessment is like "checking the weather forecast." Just as you would check the weather before planning an outdoor event, a CPA firm assesses the risks associated with a client or engagement to make informed decisions.

Client acceptance criteria are akin to "admission requirements" for a school. Just as a school has criteria for admitting students, a CPA firm has criteria for accepting new clients to ensure they meet certain standards.

An engagement letter is like a "contract" between two parties. Just as a contract outlines the terms of a business agreement, an engagement letter outlines the terms of the CPA's services to the client.

Client continuance criteria are similar to "performance reviews" for employees. Just as an employer reviews an employee's performance to determine if they should continue working for the company, a CPA firm reviews its client relationships to decide if they should continue providing services.

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