## Client Acceptance: Assessing Integrity of a Prospective Client

### Why Integrity Assessment Matters

Before accepting a new audit engagement, the audit firm must assess the integrity of the prospective client. Accepting a client with poor integrity could compromise the firm's reputation and professional obligations.

### Six Key Matters to Consider

1. Identity and business reputation of:

Principal owners
Key management
Related parties
Those charged with governance (e.g., Board of Directors)

2. Nature of operations — including the entity's business practices

3. Attitude towards:

Aggressive interpretation of accounting standards
The internal control environment

4. Fee aggression — Whether the client is aggressively concerned with keeping audit fees as low as possible (may signal intent to limit audit scope)

5. Scope limitations — Indications of inappropriate limitations on the scope of work

6. Criminal activities — Indications that the client might be involved in money laundering or other criminal activities

### Practical Implication

If red flags arise during integrity assessment, the firm should either decline the engagement or implement enhanced procedures and safeguards before accepting.

Worked example

### Example 1

Q26 (RTP Sep 24): ABC & Associates is approached by a 10-year-old company to conduct an audit. Before accepting, the firm wants to assess the integrity of the prospective client. What matters should be considered?

Answer: ABC & Associates should consider:

1. Identity and business reputation of the client's principal owners, key management, related parties, and those charged with its governance.

2. The nature of the client's operations, including business practices.

3. Information concerning the attitude of principal owners, key management, and those charged with governance towards aggressive interpretation of accounting standards and the internal control environment.

4. Whether the client is aggressively concerned with maintaining the firm's fees as low as possible.

5. Indications of an inappropriate limitation in the scope of work.

6. Indications that the client might be involved in money laundering or other criminal activities.

⚠️ Common exam mistakes

Listing only 2–3 factors when six are expected — memorise all six integrity assessment matters
Confusing integrity assessment (pre-engagement / client acceptance) with risk assessment (during the audit engagement)
Forgetting the 'money laundering / criminal activities' factor — it is an easy mark that students frequently miss
Forgetting the 'aggressive fee minimisation' factor — this is a subtle but tested indicator of integrity risk

Reference: SQC 1 (Client Acceptance and Continuance) — SQC 1 — Quality Control for Firms that Perform Audits and Reviews

Now that you've read this — what's next?

Move from understanding → mastery in 3 clicks. Each option below picks up from this lesson's topic.

🔥 Drill 5 Qs on this → ✍️ Adaptive practice →

Client Acceptance — Assessing Integrity of Prospective Client

Worked example

⚠️ Common exam mistakes