Recent trends in client screening procedures by external auditors in Malta

Abstract

PURPOSE: The objective of this study is to evaluate the procedures that auditors in Malta follow before accepting or continuing with an audit engagement, and whether such procedures differ according to the size and type of audit client. It analyses the reasons which led auditors to implement enhanced due diligence procedures and the challenges they encounter. The study also delves into the role of client-screening technology, and it also seeks to understand the link between the external auditor and the compliance function during such procedures. DESIGN: In achieving the objectives of the study, data was collected by means of a qualitative research approach. Sixteen semi-structured, in-depth interviews were conducted with experts in the audit profession working within local audit firms. FINDINGS: The study found that client screening procedures that are mainly considered include gaining a detailed understanding about the client and its environment by collecting all necessary documentation. These further include assessing the client’s integrity and compliance with ethical requirements and conducting face-to-face meetings with the clients. Auditors do not apply completely different procedures for different type of customers, but rather, depending on the risk presented, they would add and adjust the standard procedures accordingly. The increase in legislation brought about in response to past events and clients venturing into riskier industries are two main issues which led to enhanced due diligence procedures. As requirements increased drastically, client-screening technology reduces the burden on the auditor, apart from increasing efficiency and effectiveness. Finally, this study concluded that there is an important link between the external auditor and the compliance function, where the compliance function assists in the client screening process. CONCLUSIONS: Client screening procedures have gained more prominence than ever before. The recent trends in client screening procedures include more rigorous, complex, and increased procedures. It is indeed no longer the case that a client can be onboarded in a matter of few days. With the regulatory environment increasingly putting client screening on the radar, the auditor’s workload and challenges encountered increased, making client-screening technology and compliance functions a necessity during such procedures. VALUE: This study adds value to this important contemporary subject on which very limited studies were conducted locally. In today’s rapidly changing business environment, client screening procedures are critical not only for ascertaining high-quality audit services, but also to safeguard the auditor’s reputation.