Chapter 2 - Accepting engagements Flashcards
What is a tender?
Firm bids/sets out reasons why they should be chosen to carry out the audit.
List some of the reasons firms use to win a tender.
- Proposed Fee
- Quality of service
- Knowledge of the business/industry
- Proposed personnel
Define lowballing.
Charging fees lower than market rate.
Which threat will arise by lowballing?
Self interest
Firm may be unable to make a profit
They may be tempted to cut corners
Instead of completing to required standard
Suggest a safeguard against lowballing.
Independent Quality Control of audit to make sure work is at acceptable standard.
ICAEW code of ethics: How should audit fee be determined?
- Personnel required
- Time taken
- Expenses
- Level of risk/responsibility
- Nature of client/how complex their operations are
- importance of work to client
Why do a risk assessment before accepting an engagement?
- identify clients that are too high risk
- to determine appropriate audit fee
- initial understanding of risk areas that might need more work
Which 4 categories do matters to do with accepting an engagment fall into?
- Risk analysis
- Ethical considerations
- (Practical) Resources available to carry out work
- *Legal) Companies Act 2006 considerations
Acronym: LERP
If there is a change in professional appointment
What should the PROSPECTIVE auditor do?
- ask prospective client permission to contact existing auditor
- seek info which could influence decision
If there is a change in professional appointment
What should the EXISTING auditor do?
- ask client permission to communicate with prospective auditor
- respond to requests and let them know of any matters
Companies Act 2006 considerations:
When can the Director/Management appoint an auditor?
- Fill a casual vacancy
2 . First appointment of auditors
Companies Act 2006 considerations:
When can the Members appoint an auditor?
Shareholders pass an ordinary resolution in a general meeting (>50% vote)
Appointment within 28 day deadline after last filing of F/S - otherwise need to use existing auditor
Companies Act 2006 considerations:
When can the Secretary of State appoint an auditor?
Rare
When no auditor has been appointed in time.
What SHOULD an audit engagement include?
- objective/scope
- management responsibilities
- auditor responsibilities
- form/content of report
- right to access records/documents/info
- expectation that management will need to provide written representation
What MAY an audit engagement include?
- fees
- practicalities
- timetable
Is there a requirement that an audit engagement letter should be sent out EVERY YEAR?
NO
Why do non-audit assurance engagements need an engagement letter?
There is more scope for variation in work agreed
Assurance engagements are covered by what standards?
Abbreviation and Full
ISAE - International standard assurance engagement
ISRE - International standard review engagement
What SHOULD non audit assurance engagement letters include?
- the work set to be carried out
- form/content of report
What is the PROCESS to REMOVE an auditor?
Ordinary resolution passed in a general meeting
What is the DUTY of an outgoing auditor?
Prepare/submit a statement of circumstances to company’s registered office
statement of circumstances = any matters to be brought to attention of shareholders/creditors
or state no circumstances
What are the RIGHTS of an auditor outgoing by REMOVAL?
- written representation circulated to members of company
- receive notice/attend/speak at general meeting where appointment is considered
What is the PROCESS when an auditor resigns?
written notice to company’s registered office
What are the RIGHTS of an auditor outgoing by RESIGNATION
- written representation circulated to members of company
- request/attend/speak at Extraordinary General Meeting (EGM)
- can be called at SHORT NOTICE
- max 4 weeks after called
Explain how LISTED companies have stricter requirements for outgoing auditors.
can’t just say no circumstances
if auditor is unsure about a doubt –> can’t walk away without explanation
