2 - Process of assurance - obtaining an engagement Flashcards
How do you obtain an engagement?
Accountants can advertise for clients, following certain guidelines
Accountants are often invited to tender for certain engagements. This is when they pitch themselves as to why they would be the best fit
What do you need to consider when accepting an engagement?
Make sure there are no independence or other ethical issues likely to cause problems
Ensure you have been appointed in a proper and legal manner
What acceptance procedures must auditors carry out?
Make sure you are professionally qualified to act and aren’t disqualified wtc. Also if there is a conflict of interest with another client
Ensure that your resources are adequate - think about the time staff and technical expertise that will be required when taking on a big audit
Obtain references Make enquiries if the directors are not personally known - look at credit history, speak to previous auditors and maybe the firms solicitors
Communicate with present auditors (professional clearance) - what are the reasons behind the change of auditors
Consider the integrity of those managing the company - Management could mislead auditors into giving the wrong opinion.
They will then consider whether the client is likely to be high or low risk
Some factors that will indicate a client is high risk
Management has low integrity - lots of estimates
Short deadline
Cash based business
Complex structures/transactions
Selling company trying to raise finance
History of non compliance with laws and regulations
Past FS not true and fair
Volatile industry
Sources of info that you could find out about new clients
Companies house - previous FS, Audit reports, owners and directors
References - bank, previous auditors and credit reference agencies
Google - references
Regulators - publicly available
Meet the directors - have a chat and speak about their businesses
What does the appointment decision chart look like?
We ask the client if we can speak to their old auditor. If they say no we immediately call this high risk because what are you hiding?
If they say yes, then we can ask old auditor about any info they would like to share with us. They can’t reply straight away as that would be a breach of confidentiality. They request permission from the client. They may say yes or no. If they say no then they would be high risk. Shows client lacks integrity
Once old auditor gives us info, we evaluate and then make our decision on whether we will sign the client
Initial communication is when new auditor contacts old auditor and asks if there is anything dodgy
What should auditors do after acceptance?
Ensure the old auditors removal or resignation has been properly finished in accordance with 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
What are the money laundering regulations?
Assurance firms must keep certain records about clients and undertake what is known as client due diligence.
Mandatory to check identity of all clients before any work is undertaken if:
An ongoing relationship is envisaged
Where a one off transaction is greater than 15,000 euros
What ID checks are taken and how long are copies kept?
For individuals - directors or shareholders
Photograph, name, Addy, passport etc
For companies-
Certificate of incorporation
Registered address
Annual return for directors and shareholders
Previous financial statements
What is the audit engagement letter and what does it contain?
ISA 210 is basically that the auditor and client agree on the terms of the engagement in writing.
MUST be included:
Objective of the audit of the FS.
Scope of the audit (FS)
The auditors responsibility - follow ISA’s and obtain reasonable assurance.
Reporting framework that is applicable for the FS - IAS/IFRS
Form of report - Positive opinion etc
Managements responsibility - To prepare FS and to provide the auditor with unrestricted access to whatever records or documents that is requested. Maintain adequate Internal controls.
COULD be included:
Arrangements regarding the planning of the audit. Deadlines etc
Basis on which fees are computed and any billing arrangements
Management sign something that confirms their numbers are estimates
