4-3(c)continuing clients

Continuing clients

Many CPA firms evaluate existing clients annually to determine whether there are reasons for not continuing to do the audit.previous conflicts over the appropriate scope of the audit, the type of opinion to issue, unpaid fees, or other matters may cause the auditor to discontinue association. The auditor may also drop a client after determining the client lacks integrity.

Even if none of the previously discussed conditions exist, the a CPA firm may decide not to continue doing audits for a client because of excessive risk . for example, a CPA firm might decide that considerable risk of a regulatory conflict exists between a governmental agency and a client, which could result in financial failure of the client and ultimately lawsuits against the CPA FIRM. EVEN IF THE ENGAGEMENT IS PROFITABLE, THE LONGTERM RISK MAY EXECCE THE SHORT TERM BENEIFITS OF DOING THE AUDIT.

Investigating new clients and reevaluating existing ones is an essential part of deciding acceptable audit risk. For example, assume a potential client operates in a reasonably risky industry, that its management has a reputation of integrity, but is also known to take aggressive financial risks. If the CPA firm decides that acceptable audit risk is extremely low, it may choose not to accept the engagement, if the CP firm concludes that acceptable audit risk is low but the client is still acceptable, the firm may accept the engagement but increase the  fee proposed to the client. Audits with a low acceptable audit risk will normally result in higher audit costs, which should be reflected in higher audit fees.