1) Pre-engagement Flashcards
what is the purpose of an audit?
to enhance the degree of confidence of the intended users of the FS – provide assurance
what does the audit opinion express?
states whether the FS are prepared, in all material aspects, in accordance with an applicable FR standard
what is the end product of the audit process?
audit report
what are the four stages of the audit process?
- pre-engagement
- planning
- risk response
- evaluation and conclusion
which ISA deals with auditor responsibilities?
ISA 200
what happens during the pre-engagement stage?
the auditor decides whether to accept the new client/retain an existing client
what must the auditor do once they have decided to accept the client?
- they must define the terms of engagement and prepare an engagement letter
- provide a fee estimate based on time, complexity of audit and skill needed for audit
who performs the pre-engagement activities?
the prospective auditor – not yet the auditor
which ISA contains the client acceptance considerations?
ISA 220
what are the client acceptance considerations?
1) integrity and competence of key mgmt/tcwg
2) competence of engagement team
3) engagement team compliance with ethical req
4) other significant matters
5) communicate with previous auditor
what would the prospective auditor look at when assessing the integrity and competence of key mgmt?
compliance with:
- laws and regulations
- good corporate governance
- IFRS
what would the prospective auditor look at when assessing the competence of the engagement team?
if auditor has sufficient time, resources, competence to perform the audit
what would the prospective auditor look at when assessing the engagement team compliance with ethics?
independence
what is a reasonable level of assurance?
- high level of assurance, not complete assurance
- means that auditor obtains sufficient audit evidence that reduces audit risk to an acceptably low level
what would make a misstatement material?
if they could reasonably be expected to influence the decisions of users
what must an auditor do if reasonable assurance cannot be obtained?
they must disclaim or withdraw from engagement
what is audit risk?
the risk that an auditor expresses an inappropriate audit opinion when the FS are materially misstated
what is detection risk?
the risk that the procedures performed by the auditor to reduce audit risk will not detect a misstatement that exists and may be material
what are the two components of ROMM?
inherent and control risk?
what are the ethical requirements the team must have relating to the auditing of FS?
- comply with ethical requirements for independence
- have professional skepticism
- exercise professional judgement
what does professional skepticism include?
being alert to evidence or conditions which indicate fraudulent activity or that documents being used are unreliable
what does using professional skepticism help with?
helps prevent overlooking unusual circumstances and overgeneralizing or using inappropriate assumptions
what is professional judgement?
applying and having relevant knowledge and experience to make an informed decision
what will an auditor look for when trying to establish if all preconditions for an audit are present?
- determine if FR framework applied to AFS is acceptable
- obtain agreement from mgmt which states that they understand their responsibility and accept that it must prepare AFS using IFRS
- provide auditor access to info relevant to the prep of AFS
what should the auditor do if mgmt imposes a limitation on the scope of the audit?
if the auditor believes it will result in the auditor disclaiming an opinion on the AFS, the auditor shall not accept the engagement
what should the auditor do if preconditions are not present?
discuss the matter with mgmt
what should the engagement letter include?
- objective and scope of the audit
- responsibilities of mgmt and the auditor
- identification of the applicable FR framework for AFS preparation
when may terms of engagement need to be revised?
for recurring audits
when shall there be changes to the terms of engagement?
when there is a reasonable justification for doing so; recorded in engagement letter
