Accepting engagements Flashcards
The ICAEW Code of Ethics states fees should be determined with reference to the following: (6)
The seniority and professional experience of the persons necessarily engaged on the work
The time expended by each
The degree of risk and responsibility which the work entails
The nature of the client’s business, the complexity of its operation and the work to be performed
The priority and importance of the work to the client
Any expenses properly incurred
Changes in professional appointment (prospective auditor = P)
P. auditor should explain to client that he has a professional duty to communicate with the E. auditor
Client should give E written authority to discuss the client’s affairs w/ P
P should then write to E, seeking info which could influence his decision to accept
If E doesn’t respond within a reasonable time, P should state his intention to accept in the absence of a reply in a specified period. E’s silence would imply no adverse comments
Once P has received confirmation that there are no reasons not to act and is prepared to accept, he should inform the client
Changes in professional appointment (existing auditor = E)
E should get written authority from client to communicate w/ P. In the absence of specific instructions from the client, E should not ordinarily volunteer info as they are bound by confidentiality
E should quickly answer the communication from P
If there are no matters of which P should be aware, E should write to say this is the case / or the opposite
*If the client fails or refuses permission for E to discuss client affairs w/ P, E should report that fact to P who can consider the impact of this on their decision to accept or not
Appointment and removal of auditors
Auditor needs to be appointed by ordinary resolution @ the AGM or GM where the FSs are put forward for approval
Auditor can be removed by ordinary resolution w/ special notice @ a GM
Auditors must make a statement of circumstances and they have the right to:
- receive notice, attend and speak at the meeting where they would have been appointed, or the new auditor is appointed
- have a written representation of a reasonable length circulated to all members
Resignation of auditors
if auditor resigns, he must:
- submit written notice to the company @ the company’s registered office
- send a statement of circumstances
the auditor has certain rights which include:
- to request that the directors convene a GM so the auditor can explain the circumstances of their resignation
- to require the company to circulate the statement of circumstances in advance of:
- the GM requested by the auditor
- any GM at which the auditor’s term of office would have otherwise expired
On receipt of the auditor’s resignation, the company must then notify:
- the Registrar of Companies
- anyone entitled to receive a copy of the company’s accounts
Why may an auditor issue a new engagement letter to a recurring client? (8)
Indications that the client misunderstands the terms of the engagement
Revised or special terms of the engagement
A recent change in senior mgmt or directors
A sig. chance in ownership of the company
A sig. change in the nature or size of the company
Legal or regulatory requirements
A change in the financial reporting framework adopted in the prep of the FSs
A change in other reporting requirements
Procedures to carry out before accepting an engagement
Enquire w mgmt if previous auditor did not seek reappointment
Obtain professional clearance to act by:
- obtain permission to communicate w previous auditor
- communicate w previous auditor and consider any points raised
inspect the statement of circumstances given by previous auditor
perform a preliminary risk assessment to ascertain the extent of audit work required to reduce audit risk to an acceptable level
perform client identification procedures
reviewed Weselton’s PY FSs and the auditor’s report
Matters to consider before accepting an engagement
New audit client
Ethical matters - independence/objectivity, fee levels - self-interest
Reputation of client
Reason the previous auditor’s didn’t seek reappointment
Mgmt’s integrity
Level of audit risk
Level of engagement risk
Adequacy of firms resources…ethical safegaurds? global firm? listed client?
Experience and knowledge of the overseas regulatory framework
