Client acceptance and continuanceEY policy
The Client Acceptance and Continuance Policy sets out principles for member firms to determine whether to accept a new client or a new engagement, or to continue with an existing client or engagement. These principles are fundamental to maintaining quality, managing risk, protecting our people and meeting regulatory requirements. The objectives of the policy are to:
- Establish a rigorous process for evaluating risk and making decisions to accept or continue clients or engagements
- Meet applicable independence requirements
- Identify and deal appropriately with any conflicts of interest
- Identify and decline clients that pose excessive risk
- Require consultation with designated professionals to identify additional risk management procedures for specific high-risk factors
- Comply with legal, regulatory and professional requirements
The EY Conflicts of Interest Global Policy, and associated guidance, was updated in early 2015. The updates take into account the increasing complexity of our engagements and client relationships, and the need for speed and accuracy in responding to our clients. They also align with the latest International Ethics Standards Board for Accountants (IESBA) standards.
Putting policy into practice
We use the EY Global Tool for Acceptance and Continuance (GTAC), an intranet-based system, for efficiently coordinating client and engagement acceptance and continuance activities in line with global, service line and member firm policies. GTAC takes users through the acceptance and continuance requirements, and identifies the policies and references to professional standards needed to assess both business opportunities and associated risks.
As part of this process, we carefully consider the risk characteristics of a prospective client and several due diligence procedures. Before we take on a new engagement or client, we determine if we can commit sufficient resources to deliver quality service, especially in highly technical areas, and if the services the client wants are appropriate for us to provide. The approval process is rigorous, and no new audit engagement may be accepted without the approval of our PPD.
In our annual client continuance process, we review our service delivery and ability to continue to provide quality service and confirm that clients share our commitment to quality and transparency in financial reporting. The partner in charge of each audit, together with our Assurance leadership, annually reviews our relationship with the audit client to determine whether continuance is appropriate.
As a result of this review, certain audit engagements are identified as requiring, and are then subjected to, additional oversight procedures during the audit (close monitoring), and some audit clients are discontinued. As with the client acceptance process, our PPD is involved in the client continuance process and must agree with the continuance decisions.
Both client acceptance and client continuance decisions consider the engagement team’s assessment of whether the company’s management could pressure us to accept inappropriate accounting, auditing and reporting conclusions to undermine quality. Considerations and conclusions on the integrity of management are essential to acceptance and continuance decisions.
We dedicate significant time and resources to the strict implementation of our client acceptance and continuance policies. Of all audit engagements accepted and continued during fiscal year 2015/2016, we classified 57 engagements or 1% as “Close Monitoring”, 33% as “Moderate Risk” and 66% as “Low Risk”. For our audit engagements at Public Interest Entities as defined by Dutch law (Organisaties van Openbaar Belang, OOBs), these figures are 3%, 72% and 25%, respectively. The policymakers decide on the external auditor and EQR reviewer of all listed entities and close monitoring audit engagements.
In fiscal year 2015/2016, we notified the AFM seven times of the early termination of a statutory audit engagement. Three of these notifications concerned multiple entities within a client’s group. All seven notifications concerned non-OOB audit clients. Five engagements were terminated by the client, two engagements were terminated by Ernst & Young Accountants LLP.
Four terminations out of these seven were triggered by the bankruptcy of the client. One engagement was terminated by the client due to its acquisition by another company. The sixth engagement related to the 2012 audit and the client decided to focus on more recent years’ audits. The seventh engagement, terminated by Ernst & Young Accountants LLP, concerned a client who did not meet the requirements under our continuous client due diligence monitoring obligations pursuant to the Dutch Money Laundering and Terrorist Financing (Prevention) Act (Wwft).