ACCA Strategic Professional · Advanced Audit and Assurance (International) · Professional liability

A firm's risk committee is considering which client to decline when assessing acceptance risk. Which client characteristic would most strongly justify declining the engagement, given the firm's PII insurer expects robust acceptance procedures?

Management with a reputation for aggressive earnings management and pressuring auditors is the strongest reason to decline. Integrity concerns raise the risk of misstatement, conflict and litigation that cannot easily be mitigated. Specialist resourcing, network coordination and fee quotations are manageable and normal parts of acceptance.

AManagement with a reputation for aggressive earnings management and for pressuring previous auditorsCorrect
BA client in a new industry for which the firm will recruit specialist staff
CA client operating in several countries where the firm has network firms
DA client wanting a fee quotation before accepting the appointment

Explanation

Doubts over management integrity are a key client acceptance risk because they raise the chance of misstatement, disputes and claims. New industries and multinational structures can be managed with resources, and fee quotations are normal practice.

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