1) Pre-engagement

Question 1

what is the purpose of an audit?

Answer 1

to enhance the degree of confidence of the intended users of the FS – provide assurance

Question 2

what does the audit opinion express?

Answer 2

states whether the FS are prepared, in all material aspects, in accordance with an applicable FR standard

Question 3

what is the end product of the audit process?

Answer 3

audit report

Question 4

what are the four stages of the audit process?

Answer 4

• pre-engagement
• planning
• risk response
• evaluation and conclusion

Question 5

which ISA deals with auditor responsibilities?

Answer 5

ISA 200

Question 6

what happens during the pre-engagement stage?

Answer 6

the auditor decides whether to accept the new client/retain an existing client

Question 7

what must the auditor do once they have decided to accept the client?

Answer 7

• 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

Question 8

who performs the pre-engagement activities?

Answer 8

the prospective auditor – not yet the auditor

Question 9

which ISA contains the client acceptance considerations?

Answer 9

ISA 220

Question 10

what are the client acceptance considerations?

Answer 10

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

Question 11

what would the prospective auditor look at when assessing the integrity and competence of key mgmt?

Answer 11

compliance with:

• laws and regulations
• good corporate governance
• IFRS

Question 12

what would the prospective auditor look at when assessing the competence of the engagement team?

Answer 12

if auditor has sufficient time, resources, competence to perform the audit

Question 13

what would the prospective auditor look at when assessing the engagement team compliance with ethics?

Answer 13

independence

Question 14

what is a reasonable level of assurance?

Answer 14

• high level of assurance, not complete assurance

- means that auditor obtains sufficient audit evidence that reduces audit risk to an acceptably low level

Question 15

what would make a misstatement material?

Answer 15

if they could reasonably be expected to influence the decisions of users

Question 16

what must an auditor do if reasonable assurance cannot be obtained?

Answer 16

they must disclaim or withdraw from engagement

Question 17

what is audit risk?

Answer 17

the risk that an auditor expresses an inappropriate audit opinion when the FS are materially misstated

Question 18

what is detection risk?

Answer 18

the risk that the procedures performed by the auditor to reduce audit risk will not detect a misstatement that exists and may be material

Question 19

what are the two components of ROMM?

Answer 19

inherent and control risk?

Question 20

what are the ethical requirements the team must have relating to the auditing of FS?

Answer 20

• comply with ethical requirements for independence
• have professional skepticism
• exercise professional judgement

Question 21

what does professional skepticism include?

Answer 21

being alert to evidence or conditions which indicate fraudulent activity or that documents being used are unreliable

Question 22

what does using professional skepticism help with?

Answer 22

helps prevent overlooking unusual circumstances and overgeneralizing or using inappropriate assumptions

Question 23

what is professional judgement?

Answer 23

applying and having relevant knowledge and experience to make an informed decision

Question 24

what will an auditor look for when trying to establish if all preconditions for an audit are present?

Answer 24

• 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

Question 25

what should the auditor do if mgmt imposes a limitation on the scope of the audit?

Answer 25

if the auditor believes it will result in the auditor disclaiming an opinion on the AFS, the auditor shall not accept the engagement

Question 26

what should the auditor do if preconditions are not present?

Answer 26

discuss the matter with mgmt

Question 27

what should the engagement letter include?

Answer 27

• objective and scope of the audit
• responsibilities of mgmt and the auditor
• identification of the applicable FR framework for AFS preparation

Question 28

when may terms of engagement need to be revised?

Answer 28

for recurring audits

Question 29

when shall there be changes to the terms of engagement?

Answer 29

when there is a reasonable justification for doing so; recorded in engagement letter