You are an audit senior in a firm of practicing accountants and your manager has gone out for an urgent meeting with a partner. Mr....

a) Before your firm accepts appointment the following factors should be considered:
1. Statutory matters
Ensure that your firm is professionally, legally and ethically qualified to act as an auditor. The auditor must ensure that he has not contravened any provisions of the companies Act in regard to independence. He must ensure that he is not a servant or in partnership with a servant of the company. In case the company has a holding company or subsidiaries it is also important to ensure that your firm has not previously been disqualified from being eligible for appointment as auditors of such subsidiaries or the holding company.
2.Ethical matters
-Your firm must also ensure that it has fulfilled all the professional ethical requirements in regard to independence. I.e. the firm must not have any personal, family or business relationships with the prospective client among other provisions;
- Your firm should establish it has the technical proficiency to undertake the audit. This will include determining whether the firm posses the necessary technical skills to carry nout the assignment;
- Establish whether the firm‘s resources are adequate to service the needs of the new client i.e. staff time with the necessary technical competence and experience;
- Your firm should seek references about the status of the company and its management. Such references will assist the auditor in assessing the potential risk in associating with this new client. Information sought would include the reputation of the company and its directors. It is a professional requirement that very firm must evaluate all prospective clients before accepting appointment. Seeking references about the client provides useful information in carrying out this evaluation;
- I would try to determine the reason for the change in auditor. The question says that the directors believe they do not receive a cost effective service from the existing auditor. However, there may be problems with the level of audit fee or the existing auditor may want to qualify his report which the directors are trying to prevent;

B) Disqualification for Appointment
Section 161 (1)
A person or a firm shall not be qualified for appointment as an auditor of a company or in the case of a firm, every partner of the firm is a holder of a practicing certificate pursuant to Section 21 of the accountants act 1977 and such a certificate
issued under the following conditions
a) A person with CPA III
b) A person with at least 3 year post graduate experience
c) A person registered with RAB
d) A person registered with KASNEB
e) A person who is a member of ICPAK

Section 161 (2)
None of the following persons shall be qualified as a n auditor of a company:-
1. A servant of a company
2. A person who is a partner or is in employment of an officer or servant of a company
3. A body corporate

Section 161 (3)
A person cannot be qualified for appointment if he has by virtue of subsection (2) above been disqualified as an auditor of a body corporate which is that company‘s subsidiary or holding company or subsidiary of the company‘s holding company or would be disqualified if the body corporate were a company

Section 161 (4)
If any person not qualified as an auditor of a company acts as one, then such a person or an officer of the company in default shall be liable to a default fine not exceeding 4,000/=

Qualification of an auditor under the Accountant Act Cap 531 Section 21
A person shall be qualified to be an auditor of a company if such a person or in the case of a firm all partners are members of one of the professional bodies specified in the first column of the Accountants Act e.g. ICPA (K), ACCA, ICAEW. This is necessary because:-
a) These bodies are watchdogs over professional ethics of their professionals.
b) They ensure that their members keep up with professional competence in the latest developments in the accounting profession through continuous professional education:-
- If the person is a holder of the final certificate of a recognized professional board.
- If the person is registered with RAB
- If the person has at least a two year of post graduate experience in an audit environment
- If the person is registered with KASNEB

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Wilfykil answered the question on February 21, 2019 at 06:12