This assessment required students to take the role of an audit manager that is currently employed with Deep Breath LCC, a medium sized national accounting firm. This particular firm offers auditing services as well as tax services. The main purpose of my role as the audit manager is to decide and justify reasons on a new audit client acceptance. The process of accepting a new client is not a simple procedure especially during this phase where the public accounting environment is changing drastically. Intense competitive pressures among audit firms in selecting the best clients and increased exposures of litigation have driven auditors to be more prudent in the process of making decisions when accepting a new audit client. (James, 2012). Therefore, the procedures and factors of considering new prospective clients must be done thoroughly in compliance of the Auditing Standards and the Code of Professional Conduct.
2.0 Purpose of External Auditing
External auditing is essential to provide verification that the annual accounts by the firm provides a true and fair impression of the finances involved in the particular organization, ensuring that preparation of financial statements abide to the International Accounting Standards and other relevant accounting policies. The auditing is done by external auditors who are objective, independent and are knowledgeable to conduct an in-depth investigation to ensure that the financial statements are free from material forgeries and misstatements. External auditing is important as it ensures compliances, provides credibility, double checks internal audit and critique internal processes to enable improvement. (Jack, 2009)
3.0 Company Introduction
Deep Breath LLC believes an engagement of a public limited company such as PETRONAS Gas Berhad that is also registered in Bursa Malaysia would present an excellent opportunity to enter a new market. Before committing to a client, a basic study of certain criteria’s listed below regarding the company must be done to obtain a certain credible knowledge on the prospective client.
3.1 Industry and business environment
The oil and gas industry in Malaysia had progress to become one of the most prioritized economic sectors. In fact, oil and gas sector is estimated to generate a Gross National Income of RM131.4 billion and a 5% annual growth during the period of 2010 to 2020. (Abdullah, 2012). The development of this particular has also resulted in an increased of competence among companies such as Exxon-Mobil, Shell and Murphy Oil.
3.2. Management team
The management team of PETRONAS constitute of an efficient team that satisfies criteria’s in terms of qualifications, skills and experience. A general study of the management team in an audit firm is important to ensure that the productiveness and efficiency of the company is always kept on tract. A highly quality management team and board of directors would reduce the existence of risk in accepting a new client.
3.3 Internal control
( PETRONAS Annual Report 2013, page 120-127)
It is also crucial to study the internal control practices PETRONAS is currently exercising when evaluating a new audit client. Listed below are the few main practices that PETRONAS carry out to meet their internal control policies in accordance to the internal control section of ISA 315: Identifying and Assessing the Risks of Material Misstatement through Understanding the Entity and Its Environment. (Ref: Para. A42–A65). The internal control is designated by the management in such way that fraud risk is reduced and the reliability of financial reporting is increased.
In terms of its Board, meeting among the board members and the Managing Director is conducted in a quarterly basis to monitor the overall governance of the group as well as solve pertinent issues that arises within that particular period. The Organization Structure is also properly defined in...
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