2.1 - Appointment Considerations Cont

Question 1

Why will an audit firm generally want a relationship with a client to be long term?

Answer 1

Enjoy receiving fees annually but also to allow the audit work to be enhanced by better knowledge of the client and thereby offer a better service

Question 2

Conflicts of interest can be a problem - what should a firm establish?

Answer 2

The firm should establish that no existing clients will cause difficulties as competitors of the new client

Question 3

The impact of taking on a project on existing engagements must be estimated in terms of…

Answer 3

Staff time and the timing of the audit

Question 4

What is the first procedure that should be carried out after accepting nomination?

Answer 4

Ensure that the outgoing auditor’s removal or resignation has been properly conducted in accordance with national legislation - new auditors should see valid notice

Question 5

What is the second procedure that should be carried out after accepting nomination?

Answer 5

Ensure that the new auditor’s appointment is valid. The new auditors should obtain a copy of the resolution passed at the general meeting appointing them as the company’s auditors

Question 6

What is the third procedure that should be carried out after accepting nomination?

Answer 6

Set up and submit a letter of engagement to the directors of the company

Question 7

What happens if the outgoing auditors have fees still owing by the client?

Answer 7

The new auditors need not decline solely for this reason

Question 8

Once the new appointment has taken place, what should the new auditors do?

Answer 8

The new auditors should obtain all books and papers which belong to the client from the outgoing auditors

Question 9

Once the new appointment has taken place, what should the outgoing auditors do?

Answer 9

Ensure that all documents are transferred promptly, unless they have a lien. They should also pass over any useful information if it will be of help, without charge, unless a lot of work is involved

Question 10

What is a lien and why might an outgoing auditor have one?

Answer 10

A lien is a legal right to hold on to the documents because of unpaid fees

Question 11

What can an outgoing auditor not have a lien over?

Answer 11

Cannot have a lien over the accounting records of a registered company as the Companies Act requires these to be available for public inspection