2: Process: Obtaining an Engagement

Question 1

What are the two key methods of obtaining and engagement?

Answer 1

1. Tender (submitting a bid)
2. Advertising

Question 2

What 6 factors are there to consider prior to accepting an engagement?

Answer 2

• are we professionally qualified to act (are there are legal or ethical issues stopping us?)
• have we spoken to the existing or previous auditors?
• do we have adequate resources available (ie. staffing)?
• have we done our due diligence (Money Laundering Regs 2007)?
• have we assessed management integrity?
• have we assessed risk?

Question 3

What info do we need to gather on a client before accepting an engagement?

Answer 3

Client
- financial statements
- internal audit reports
- management accounts

External
- credit ratings
- bankers, solicitors
- laws and regulations
- internet search

Auditor
- previous auditor

Question 4

What are the critical yes/no points on the appointment decision chart?

Answer 4

If it’s the org’s first audit - YES

If the org doesn’t give permission to contact old auditor - NO

If the auditor does not give old auditor permission to reply - NO

If the auditor does not reply - chase, and if still no reply, decide on appointment based on available info!

Question 5

What is client due diligence, and how does it differ for individuals and companies?

Answer 5

To comply with Money Laundering Regulations 2007, correct identification needs to be obtained before appointment.

Individuals
- photo ID and other documents confirming name and address

Companies
- ID from companies house

Client ID must be kept for a minimum of 5 years, and until 5 years have elapsed since the relationship with the client has ceased

Question 6

3 broad procedures after accepting an engagement?

Answer 6

1. Ensure outgoing auditor’s removal/resignation has been properly conducted
2. Ensure new auditors’ appointment is valid
3. Prepare and submit a letter of engagement to the directors of the company (done just after the auditors have accepted nomination)

Question 7

What are the purpose and practicalities of the engagement letter.

Answer 7

1. Define the extent of firm’s and management’s responsibilities
2. Minimise potential for misunderstanding between client and firm
3. Provide written confirmation of:
   - the firm’s acceptance of appointment
   - the scope of the engagement
   - the form of reports to be issued

Send to all clients

Send as soon as possible after appointment

Question 8

What are the total contents of an engagement letter (as per ISA 210)?

Answer 8

MUST include:
- objectives of work/auditor’s responsibilities
- management’s responsibilities
- scope of work
- form of any reports
- level of access to books and records
- reporting framework

May include:
- inherent limitations of the engagement
- expectations re: written management representations
- confidentiality/restricted circulation/use of report
- arrangements re: reliance on internal audit
- restrictions on auditor’s liability
- basis of fee calculations