2. Accepting Engagements Flashcards
Methods of obtaining an audit
Most common: Tender
(Could be direct request)
Tender: Some things presented in tender
(Reasons to pick them:)
Proposed fee
quality of service
knowledge of business/industry
proposed personnel
Audit fee: what can a firm charge?
Anything
But care taken against lowballing
Lowballing safeguard example
Engagement quality review
(And culture of integrity)
ICAEW code of ethics: Fee should be determined by
- Personell
- Time taken
- Degree of risk and responsibility needed
- Nature of client business (complexity)
- Importance of work to client
- Expenses to be incurred
Four main factors to discuss prior to accepting audit engagement
- Risk analysis
- Ethical considerations
- Resources available
- CA considerations
Audit acceptance considerations: Risk analysis: What should be done
Preliminary risk assessment
Is too high risk?
Audit fee
Specific risk areas
Audit acceptance considerations: Ethical considerations: What needs to be considered?
Can firm comply with relevant ethical requirements? (OBT)
Audit acceptance considerations: Ethical requirements: For prospective auditors
Ask for permission to contact existing auditor
And contact them for info that could influence decision to accept
Audit acceptance considerations: Ethical requirements: Existing auditors
Ask client to contact prospective auditor
Then respond
Audit acceptance considerations: CA: When can directors appoint auditor?
- To fill a casual vacancy
- First appointment of auditors
Audit acceptance considerations: CA: How do members have to appoint?
Ordinary resolution in GM (>50%)
Audit acceptance considerations: CA: Appointment by members: Appointment deadline
28d after LATEST of:
1. Filing
2. Reappointment of existing auditor
Audit acceptance considerations: CA: When does the secretary of state appoint?
No auditor appointment in relevant time (rare)
Audit acceptance considerations: CA: 3 people who can appoint?
- Directors
- Members
- Secretary of state
Where is terms of audit engagement set out?
Engagement letter
What does engagement letter do?
Acts as contract
What do ISAs say en engagement letter includes?
- Objective and scope
- Management responsibilities
- Auditor responsibilities
- Form & content of reports and communications
- Auditor rights to access required info
- Expectation that management will provide written representations
Potentially other matters
e.g. Fees and timetabling
Is a new EL required every year for recurring audits
No
But has to be considered
E.g. when changes in terms of engagement or board of directors
Is an EL required for other assurance engagements?
Yes
(Arguably more important as less predictable)
Audits regulated by many regulations
Other assurance may be covered by ISAEs or ISREs
ISAE
International standard on assurance engagements
ISRE
International standard on review engagements
Ceasing to be auditor: Duty of outgoing auditor when ordinary resolution passed in a GM
- Prepare and submit statement of circumstances
To Cs registered office -
Statement of matters
To be brought to attention to shareholders/creditors
Or statement that there aren’t any
Ceasing to be auditor: Rights of outgoing auditor when ordinary resolution passed in a GM
Written representations to be circulated to members
Receiving notice of, attend and speak at GM where appointment to be considered
Ceasing to be auditor: Duty of outgoing auditor when notice submitted to company’s registered office
Same
Ceasing to be auditor: Rights of outgoing auditor when notice submitted to company’s registered office
Same, but for EGM
Ceasing to be auditor: CA: EGM definitions
Extraordinary General Meeting
Can be called at short notice
(Max 4w after being called)
Ceasing to be auditor: Can a statement of circumstances merely state that there are no circumstances to communicate to shareholders/creditors?
No
(So issues can’t be walked away from)
