Accepting Engagements - Chapter 3 Flashcards
what is the most common way auditors obtain audits?
tender (bidding)
how do tenders work?
firm sets out reasons as to why they should be chosen
e.g., proposed fee, quality of service, industry knowledge, proposed personnel
lowballing?
when a firm charges below market rate for an audit engagement
safeguards for lowballing?
EQR to ensure audit quality remains high and no cutting corners occurs
harms of lowballing?
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
what are the 6 fee determinants according to ICAEW code of ethics?
- personnel
- importance of work
- expenses incurred
- nature of client operations
- time taken for audit work
- degree of risk
must basis for computation of audit fees be disclosed to the client?
yes
it’s likely to be in the tender document
audit acceptance matters to be considered?
- risk analysis
- resources
- ethical considerations
- companies act 2006
preliminary risk assessment’s purpose?
must be done prior to the audit to
- determine appropriate fee
- identify high risk clients
- foresee areas that may require more work/attention
prospective auditors must…
contact outgoing auditor (upon client permission)
consider their reply
outgoing auditors must…
respond to prospective auditors’ requests for info (upon client permission)
must the firm consider if they have sufficient resources to conduct the audit?
yes
who may appoint auditors?
- directors (to fill a vacancy)
- shareholders
- secretary of state (when nobody’s appointed)
only accept audit engagements when which preconditions are met?
- correct FR framework is used
- management understand their responsibilities
management responsibilities during an audit engagement include?
- provide auditor w/ info
- use correct FR framework
- implement adequate controls