Accepting Engagements - Chapter 3 Flashcards

1
Q

what is the most common way auditors obtain audits?

A

tender (bidding)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

how do tenders work?

A

firm sets out reasons as to why they should be chosen

e.g., proposed fee, quality of service, industry knowledge, proposed personnel

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

lowballing?

A

when a firm charges below market rate for an audit engagement

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

safeguards for lowballing?

A

EQR to ensure audit quality remains high and no cutting corners occurs

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

harms of lowballing?

A

lowballing can result in auditors being less incentivised to work hard and as a result harms audit quality and encourages corner cutting to keep costs low

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

what are the 6 fee determinants according to ICAEW code of ethics?

A
  • personnel
  • importance of work
  • expenses incurred
  • nature of client operations
  • time taken for audit work
  • degree of risk
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

must basis for computation of audit fees be disclosed to the client?

A

yes

it’s likely to be in the tender document

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

audit acceptance matters to be considered?

A
  • risk analysis
  • resources
  • ethical considerations
  • companies act 2006
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

preliminary risk assessment’s purpose?

A

must be done prior to the audit to
- determine appropriate fee
- identify high risk clients
- foresee areas that may require more work/attention

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

prospective auditors must…

A

contact outgoing auditor (upon client permission)

consider their reply

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

outgoing auditors must…

A

respond to prospective auditors’ requests for info (upon client permission)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

must the firm consider if they have sufficient resources to conduct the audit?

A

yes

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

who may appoint auditors?

A
  • directors (to fill a vacancy)
  • shareholders
  • secretary of state (when nobody’s appointed)
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

only accept audit engagements when which preconditions are met?

A
  • correct FR framework is used
  • management understand their responsibilities
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

management responsibilities during an audit engagement include?

A
  • provide auditor w/ info
  • use correct FR framework
  • implement adequate controls
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

ISA210?

A

outlines what an engagement letter should include

17
Q

purpose of an engagement letter?

A

to set out the terms of the engagement to mitigate confusion

contract between client and auditor

18
Q

contents of an engagement letter?

A
  • objective & scope
  • responsibilities of auditor & management
  • auditor’s rights to access info
  • form & content of reports
  • basis of fees
  • need for written reps
  • audit timetable
19
Q

for recurring audits, must new engagement letters be issued annually?

A

no

new engagement letter is necessary if:
- changes in board of directors
- changes in terms of engagement

20
Q

are engagement letters necessary for other assurance engagements (e.g., due diligence, forecast reviews etc)?

A

yes

arguably more important for other assurance engagements as the scope is wider (beyond the FSs)

21
Q

what sets out the legal requirements when auditors cease to hold office?

A

companies act 2006

22
Q

duty & rights of auditors when removed?

A
  • duty to submit a statement of circumstances to the client’s registered office
  • right to prepare written reps to be circulated to shareholders
  • right to attend general meeting
23
Q

duty & rights of auditors when resigned?

A
  • duty to submit statement of circumstances to the client’s registered office
  • right to prepare written reps to be circulated to shareholders
  • right to attend extraordinary general meeting