chap 8 accept client and perform initial audit planning Flashcards
what are a couple of reasons CPA firms refuse clients
- they are in a high risk industry = 2. for a small firm they might not want a compnay if they are publicly held so they dont want the risk of litigation or the high costs associated with registering the audit firm with the PCAOB
After understanding the client’s reason for an audit, the auditor should ?
develop and document a preliminary audit strategy
the audit strategy considers what?
the nature of the clients business, the number of client locations and the past effectiveness of client controls in developing a prelimianry approach to the audit
before accepting a new client most firms investigate the compnay to dertmine its acceptability as well as looking at themselves…how do they do this? (5)
- examin the prospedtive3 clients standing in the business community 2. examine financial stability 3. examine relations with its previous CPA firm 4. determine that theCPA firm has the competency like industry knowledge 5. must know that the CPA firm can satisfy all independence requirements
The new (successor) auditor is required by auditing standards to ?
communicate with the predecessor auditor.
Risk factors associated with the client’s reasons for an audit that are major factors affecting acceptable audit include what 2 things?
1.likely statement users 2. the intended uses of the statements
T/F Auditing standards do not require that there be an engagement letter which includes the engagement’s objectives
F
what does the AICPA standards require from the auditor regarding the financial reporting framework to be used by management to preparte the FSs?
that the auditor determine whether the framework is appropriate because if it isnt’ then the auditor doesnt have suitable criteria for auditing the FSs
the audit reporet should not refer to the specialist being used unless?
the specialist report results in a modification of the audit opinion
T/FA clear understanding of the terms of the engagement should exist between the auditor and the client
T
what is included in the engagement letter? (5)
- the objectives 2. the responsibilities of management and the auditor 3. identification of the financial reporting framework used by management 4. reference to expected form and content of audit report 5. limitations of the engagement
the audit strategy does what?
sets the scope, timing , and direction of the audit and guides the development of the audit plan
the auditor is likely to accumulate more evidence when the statements are to be used extensively which is the case in what 3 cases?
- the company is public 2. the company has extensive indebtedness 3. the company is about to be sold in the near future
what are the 3 ways the auditor determine if the company is using an appropriate financial reporting framework?
they consider the nature of the entity, the purpose and nature of the FSs, and whether laws or regulations prscrive a particular framework
Initial audit planning involves what four things?
- The auditor decides whether to accept a new client or continue serving an existing client. 2. The auditor identifies why the client wants or needs an audit. 3. To avoid misunderstandings, the auditor obtains an understanding with the client about the terms of the engagement. 4. The auditor develops the overall strategy for the audit, including engagement staffing and any required audit specialists.
