Page 236 - AAA Integrated Workbook STUDENT S18-J19

Chapter 15 4

Acceptance considerations

Before accepting the engagement the firm should consider:

 Why the company is not using their existing firm of accountants if they do not
approach their current provider of services.

 Whether the target company’s employees know about the acquisition. If not, the
firm will need to be careful not to disclose information to the employees when
obtaining evidence.

 Whether the acquisition is a hostile takeover. This may affect the ability to
obtain sufficient appropriate evidence from the target company.

 Exact scope of the due diligence, e.g. limited assurance or agreed upon
procedures, financial due diligence only or consideration of commercial, legal,
or operational matters. This will affect the time and resources required.

 The reason for the acquisition. This may affect the type of information that
needs to be gathered.

 The deadline for the report. Some due diligence engagements may require the
investigations to be performed at short notice.

 Any ethical threats which may be created. If the due diligence involves valuing
the target company’s assets and liabilities, a self-review threat may be created
later on if the audit firm then audits those assets and liabilities which have been
purchased by the audit client. If the assets have been overvalued the audit firm
may be reluctant to bring this to the client’s attention.

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