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Glossary/Engagements and reports

Engagement acceptance

Engagement acceptance is the firm's decision to take on a specific engagement after evaluating the client's integrity, the firm's competence, capacity and independence, and whether the preconditions for the engagement are present.

CORAA TeamUpdated November 5, 2026

Definition

Engagement acceptance is the point at which a firm decides whether to take on a particular audit, review or other engagement. SQMS No. 1 requires the firm's system of quality management to address acceptance and continuance of client relationships and specific engagements. For an audit, AU-C 210 adds preconditions: the financial reporting framework must be acceptable, and management must acknowledge its responsibility for the financial statements, for internal control it determines is necessary, and for giving the auditor access to information and people. Unless law requires it, the auditor does not accept an audit when a precondition is missing.

Why it matters in an audit or review

Many later problems trace back to acceptance, such as an unacceptable framework, a restricted scope, weak management integrity, or a firm lacking industry knowledge. Reviewers expect documented acceptance steps, an independence check, and communication with a predecessor on an initial audit.

Example

Illustrative: a prospect asks for an audit but will not allow the firm to speak with its bank or its legal counsel. The firm treats the scope restriction as a missing precondition, declines the audit, and documents the reasons.

Common mistakes

  • Treating acceptance as a sales step with no documented evaluation.
  • Signing an engagement letter before the independence check is finished.

Sources

  • AICPA, AU-C section 210, Terms of Engagement, as amended by SAS No. 146 and SAS No. 147
  • AICPA, Statement on Quality Management Standards No. 1, A Firm's System of Quality Management (QM section 10)
  • AICPA, AU-C section 220, Quality Management for an Engagement Conducted in Accordance with GAAS

Definitions paraphrase AICPA and FASB guidance; read the standard itself before relying on a requirement. Example figures are illustrative. This page is guidance, not professional advice. Report an error

Standards

AU-C 210AU-C 220SQMS 1

Related terms

  • Engagement letter
    An engagement letter is the written agreement between the firm and the client that sets the engagement's objective, scope, management's responsibilities, reporting, and fees, as AU-C 210 requires for audits.
  • Client continuance
    Client continuance is a firm's periodic decision whether to keep serving an existing client, based on updated information about management integrity, independence, fees, risk, and the firm's capacity to perform the work.
  • First-year audit (initial engagement)
    A first-year audit is an initial engagement where the auditor must also obtain evidence that opening balances do not contain material misstatements and that accounting policies were applied consistently.
  • Independence
    Independence for an auditor means independence of mind and independence in appearance. It is required for audits and reviews, and under the AICPA Code it is judged using a conceptual framework.
  • Predecessor and successor auditor
    The predecessor auditor is the one being replaced and the successor is the incoming auditor, who communicates with the predecessor before accepting an engagement and may review its workpapers with permission.

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