The National Metal Works Limited manufactures and retails door and window frames. The company recently dismissed their external auditors. The directors have approached your firm of accountants to act as their auditors and the directors have proposed a fee of KShs. 1, 000, 000 plus a bonus of 1% of profits after tax. Required: Describe the steps you would take before advising the partners of your firm whether to accept the appointment as auditors or not

(a) The auditors should take the following steps before accepting nomination as auditors of Nairobi Metal Works: –

i. The auditors should ensure that they are professionally qualified to act as auditors and not disqualified for any legal, ethical or professional reasons from acting. For example the partners in your firm should confirm that they are not servants of the company and they have not breached any of the ICPAK guidelines on professional independence.

ii. The auditors must be satisfied that the firm is able to service the clients‘ needs from existing resources by providing staff with the appropriate experience and qualifications at the right time to carry out the work.

iii. The auditors should gain an understanding of the nature of the client, and check on their status. This information will assist your firm in evaluating the potential risk in engaging with this client. For example your firm should not associate with clients whose management has a reputation of dishonesty.

iv. Your firm should seek references from other business associates of this proposed client. Again the references obtained will assist in evaluating the client for any potential risk.

v. According to statement no. 8 issued by ICPA (K), the auditors should, with the company‘s permission, communicate with the company‘s previous auditors. If permission is withheld, the auditors should not accept nomination. The new auditors should only accept the nomination if the previous auditors can confirm that there are no legal or professional reasons why they should not accept. If the previous auditors have been dismissed because of unwillingness to concur with unacceptable accounting policies or improper practice by the director, the new auditors should not be party to such a practice. If the reply from the old auditors indicates that such difficulties have arisen, the new auditors need to discuss them fully with the directors and be sure that they will not be faced with unacceptable ethical problems after accepting the appointment. The provisions of statement 8, are summarized in the following table: –

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