Accepting and Managing Engagements

Question 1

What are the two main quality objectives of a system of quality management?

Answer 1

That the firm fulfils their professional responsibilities in accordance with professional standards

Engagement reports are appropriate

Question 2

What are the eight key components to the system of quality management?

Answer 2

IN TEXT!!!

1. Risk assessment process
2. Governance and Leadership
   Culture, leadership
3. Ethical requirements
   Understand & fulfil
4. Acceptance and continuation of client relationships
   Client’s integrity - reputation, attitudes
   Firm’s ability to perform
   Financial priorities should not lead to engagement
5. Engagement performance
   Supervision, direction, review
   EQR - mandatory for listed clients
6. Resources
   Personnel - competent, enough time and commitment to quality
   Tech - sufficient programmes
7. Information and communication
   Communication & how it is styored
8. Monitoring and remediation process
   Cold review process

Question 3

What situations may lead an audit firm to choose to perform an EQR even though they are not listed?

Answer 3

Engagement requires a high level of complexity/judgement

History of control deficiency

Higher risk entities

Question 4

What is the main risk associated with lowballing during a tender?

Answer 4

Increases self interest threat - ability to complete the audit is potentially compromised
If fees are routinely set too low, then this communicates to staff that ethics are unimportant

Question 5

How can auditors be appointed by share holders?

Answer 5

Ordinary resolution

Question 6

How can auditors be removed

Answer 6

Ordinary resolution with special notice
> written resolution must be circulated
> If listed - have to submit a statement of circumstance
> must be given change to speak at meeting

Question 7

Why is it more important to clarify the scope and terms of engagement in an assurance engagement other than audit?

Answer 7

No detailed regulatory framework
Greater risk of misunderstanding
Negotiation and formal documentation of terms more important

Question 8

In an assurance engagement, if the practitioner feels the subject matter is materially misstated in the following ways, what would be the impact on the report?

Material

Pervasive

If the practitioner feels there has been a limitation of scope, the effect on the report would be as follows;

Material to one are

Pervasive

Answer 8

Misstatement;

Material: Express a qualified conclusion on the limited assurance provided

Pervasive: Give an adverse conclusion that the financial statements do not give a true and fair view

Limitation of scope;

Material to one area; Express a qualified conclusion on the limited assurance provided

Pervasive: disclaim a conclusion

Question 9

What are the three steps in a risk assessment

Answer 9

Establish objectives

Identify risks

Respond to risks

Question 10

Locate ISQM 1 & 2 requirements in Text

Answer 10

Part 10 - Quality standards chapters

Question 11

In order for Limited liabiloty agreements to be valid they must;

Answer 11

Cover one financial year

Be approved by a resolution of company’s shareholders

Be fair and reasonable - court can override

Question 12

What are the steps, in order, in relation to the replacement of an auditor

Answer 12

1. Existing auditor must be removed by ordinary resolution with special notice & have opportunity to speak at meeting
   If listed, have to submit a statement of circumstance
2. Prospective auditor requests permission to communicate with existing auditor
3. If client fails to grant permission, existing auditor should report this to prospective auditors
4. Prospective auditor writes to existing auditor asking for information that could influence their decision as to whether to accept
   Tries once more with recorded delivery & specify response period
   Silence indicates no adverse comments
5. Existing auditor cannot tip off prospective auditor
   Should report anything untoward - does not need prospective has to reject but must consider

Question 13

What are the only situations in which the directors of a company can select the auditors rather than the shareholders?

Answer 13

To fill a casual vacancy
To appoint first auditors before first AGM

Question 14

What is the mnemonic to remember matters to be considered when tendering / accepting work

Answer 14

TRIMROT

Technical competence of staff
Resources
Independence
Money laundering
Risks/references
Outgoing auditors
Terms of engagement