Chapter 3 - Accepting Engagements

Question 1

What is Lowballing and risks?

Answer 1

• Setting a fee below market rate
• Self-interest risk, may cut corners to maximise profit

Question 2

Determinants of Fees? (6)

Answer 2

Personnel
Time taken
Expenses incurred
Nature of client
Degree of risk/responsibility
Importance of work to client

Question 3

Risk assessment objectives

Answer 3

• identify high risk clients
• Determine appropriate fee
• Develop initial understanding of risk areas

Question 4

Who can appoint auditors?

Answer 4

• Shareholders (>50% vote), within 28 days of latest FS filing
• Directors, if vacancy or first appointment
• Secretary of State in emergency, where there is no auditor and audit is due

Question 5

Preconditions for an Audit

Answer 5

• Acceptable FR framework applied in FS preparation
• Obtain management agreement of their responsibilities (internal controls, access to relevant information)

Question 6

What to do if preconditions not met?

Answer 6

Auditor discuss matter with management.
Don’t accept engagement unless required to do so.

Question 7

Describe Engagement Letter

Answer 7

Purpose is to set out terms of engagement, acts as a contract
Main contents are the objective & scope, responsibilities of both auditor and management, auditor’s rights to information, and the form and contents of the audit reports
Also included : basis of fees, practicalities, need for a written representation letter, and the audit timetable.

Question 8

Do other assurance engagements need an Engagement Letter?

Answer 8

Yes, maybe even more important due to variety of scope

Question 9

Duty of outgoing auditor

Answer 9

Prepare and submit a statement of circumstances to company’s registered office

Question 10

Rights of outgoing auditor

Answer 10

• Prepare written representations to be circulated to members of company
• Attend and speak at general meeting where appointment is considered