Chapter 2 - Obtaining engagement Flashcards
How is an offer of engagement made?
Invitation to tender via a quote
What sets out the considerations for acceptance?
Section 320 of ICAEW code of ethics
What does section 320 state?
Auditor must identify any independence/ethical issues
New accountants must ensure appointment was legal
What is a key factor in evaluating ethical threats?
Whether the previous/existing accountant can be contacted
Helps auditor gage whether engagement should be accepted
What procedures must be carried out when accepting engagement?
Ensure:
- pro qualified to act
- existing resources adequate
- Obtaining references
- Communicating with existing/previous auditors
What are the traits of low risk clients?
- Good long term prospects
- Well financed
- Strong internal controls
- Conservative prudent accounting policies
- Competent
- Honest management
What are the traits of high risk clients?
- Poor recent/forecast performance
- Lack of finance
- Significant control weaknesses
- Questionable integrity
- Doubtful accounting policies
- No FD
What happens if a risk level is anything other than low?
- Specific risks identified and documented
- Assign specialists in response to risk
What should expected fees reflect?
Level of risk expected
What kind of relationships do audit firms want?
Long-term
What are sources of information about new clients?
Bankers
Solicitors
Review of docs
Previous auditors
Review of rules/standards
What are the procedures after accepting nomination?
- Ensure removal and appointment was valid
- Submit letter of engagement to directors
- Obtain all books and papers
How long must client identification docs be kept?
5 years
What is contained within an engagement letter?
- Extent of responsibilities of the firm
- Provides written confirmation of acceptance
- Scope of engagement
- Form of report
- Framework
What is the difference between an audit and assurance engagament letter?
- Assurance includes specific fees
- Scope of review
