2: Process of assurance - Obtaining an engagement

Question 1

How do assurance firms obtain an engagement?

Answer 1

• Accountants may advertise for clients within certain professional guidlines
• Accountants often invited to tender for particular engagements e.g. offer a quote for their services.

Question 2

What are the 5 acceptance procedures?

Answer 2

COCEE

1. Ensure professionally qualified to act - legal/ethical grounds e.g. conflict of interest
2. Ensure existing resources adequate - consider available time/staff/expertise
3. Obtain references
4. Communicate with present auditors - professional clearance e.g. enquire whether there are reasons behind the change which new auditors ought to know, also as a matter of courtesy.
5. Consider the integrity of those managing the company e.g. directors

Question 3

Give some factors that could indicate a client is high risk

Answer 3

Low performance, raising finance, past fraud, internal control weakness, management lack integrity, volatile industry.

Question 4

Suggest sources of information that could be sought about new clients.

Answer 4

Trade articles,
stock prices,
companies house – certificate of incorporation – details of shareholders/directors
newspapers, internet searches, news
References
PY Financial statements

Question 5

Explain professional clearance

Answer 5

Prospective auditors should seek the prospective client’s permission to contact the previous auditors. If this permission is not given, the prospective auditors should normally decline the appointment. Normally permission will be given, so the prospective auditors can write to the outgoing auditors.

Question 6

What procedures should be carried out after acceptance of engagement?

Answer 6

SEEM

Ensure that the outgoing auditors’ removal or resignation has been properly conducted in accordance with national legislation.
🞂 Ensure that the new auditors’ appointment is valid.
🞂 Set up and submit a letter of engagement to the directors of the company.
🞂 Do Money laundering checks

Question 7

What checks must take place to comply with money laundering regulations?

Answer 7

It is mandatory to check the identity of all clients before any work is undertaken:
🞂 when an ongoing relationship is envisaged
🞂 or where a one-off transaction(s) greater than €15,000 will take place
The following identification checks should be undertaken, and copies kept until 5 years after the relationship with the client has ended:

For Individuals
Photograph
Full name
Permanent address
Ie a passport & utility bill

For Companies
Certificate of Incorporation
Registered address
Confirmation Statement (Annual Return) for Directors & Shareholders
Previous financial statements

Question 8

What is the purpose of an engagement letter? Give 2

Answer 8

1. Provides clear understanding of auditor & client responsibilities
2. Written confirmation of the auditors response. (Contract)

Question 9

What items must be included in an engagement letter?

Answer 9

MARROWS
Management’s responsibility to prepare the financial statements and to provide the auditor with unrestricted records to docs/records requested
Auditors responsibility - independence, ethical PIPCO opinion on f/s
Reporting framework - IFRS
Reports - written confirmation of audit output
Objective of audit of financial statements - to express an opinion on f/s
With Scope of audit - extent of audit procedures and the period covered. Also reference to legislation, regulations etc

Question 10

What could also be included in an engagement letter?

Answer 10

• the planning of the audit. e.g. nature, extent of procedures, timing
  🞂 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 in 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.