2. Obtaining an Assurance Flashcards
How to obtain an assurance?
- Accountants are only permitted to advertise for clients within certain professional guidelines (ie. don’t slate the competition)
- Accountants are often invited to tender for particular engagements (offer a quote for their services)
Accepting an engagement - appointment considerations to ensure that their appointment is valid and that they are clear to act - what are the procedures?
- Ensure professionally qualified to act - consider whether disqualified on legal or ethical grounds
- Ensure existing resources are adequate - consider available time, staff and technical expertise
- Obtain references ie. bank, solicitor - make independent enquiries if directors are not personally known; important to get an idea of the integrity of the directors
- Communicate with present auditors - enquire whether there are reasons around the change which the new auditors should know (also as a matter of courtesy) = professional clearance
* * require the prospective client’s PERMISSION to contact = if permission not given, the prospective auditors should normally decline the appointment - Consider the integrity of the managing directors - management could mislead the auditor into giving the wrong opinion; the auditor is then liable to giving the wrong opinion and being sued
What factors could indicate that an audit client is high risk?
- previous auditors leaving
- bad press/scandals/whistleblowers
- past frauds
- management with low integrity
- having a low reporting deadline (auditors rushed = more prone to error)
- complex transactions
- complex structure (lots of subsidiaries) or v large
- lots of cash flow (cash-based businesses are risky)
- complex industries ie. pharma = difficult to audit
- seeking finance/planning to sell the company = incentive to manipulate FS = ‘window dressing’
- planning on listing on the stock exchange market - may be included to window dress
What procedures should be carried out after acceptance?
- Ensure that the outgoing auditors’ removal or resignation has been properly conducted in accordance with legislation (ensure have been voted out by SHs)
- Ensure that the new auditors’ appointment is valid (SHs have voted them in)
- Set up and submit a letter of engagement to the directors of the company
- Do money laundering checks
Money laundering regulations
Money Laundering Regulations 2007
Client due diligence = ‘know your client’ procedures
It is mandatory to check the identity of all clients before ay work is undertaken:
- When an ongoing relationship is envisaged
- Where a one-off transaction of > €15,000 will take place
What ID checks?
- Individuals: photograph, full name, permanent address,
- Companies: Certificate of Incorporation, registered address, Confirmation Statement for Directors/Shareholders, previous FS
How look should ID be of clients be kept?
Until 5 years after the relationship with the client has ended
When is it mandatory to undertake due diligence checks?
- When an ongoing relationship is envisaged
- Where a one-off transaction of > €15,000 will take place
Audit engagement term letters: what are they and when should they be sent?
CONTRACT
-Send soon after their appointment and prior to the first audit assignment
Audit engagement term letters: what should be included? MUST
- the objective of the audit
- the scope of the audit
- the auditor’s responsibility
- the reporting framework which is applicable for the prepared FS
- the management’s responsibility to prepare the FS and to provide the auditor with unrestricted access to whatever records, documentation etc is requested in connection with the audit
- confirmation of audit output + form of any reports (audit report: opinion; management letter: add value)
Audit engagement term letters: what should be included? SHOULD
- arrangements regarding the planning on the audit (key dates)
- expectation of receiving from management written confirmation of representations made in connection with the audit
- basis on which fees are computed and any billing arrangements
- arrangements concerning the involvement of other auditors and experts for some aspects of the audit
- arrangements concerning the involvement of internal auditors and other client staff
- any restriction of the auditor’s liability when such possibility exists (ie. if sued, can only be sued for £X - rarely allowed this clause)!
