Chapter 3 Section 1: Engagement Acceptance and Understanding the Assignment Flashcards
Who does SOX apply to?
Issuers
Who does the auditor report to under SOX?
The audit commitee
What type of audit needs to be performed for an issuer?
What needs to be audited in this type of audit?
Integrated
Financials and internal controls
What five things should be considered specifically when evaluating client acceptance and continuance?
Firm's ability to meet reporting deadlines Firm's ability to staff the engagement Independence Integrity of client management Group audits
What are the two preconditions for an audit?
Applicable financial reporting framework is appropriate
Management responsibilities are defined
What are management’s responsibilities?
Preparation and fair presentation of financials
Design, implementation, and maintenance of internal control
Under what conditions can you still accept an engagement when there is management-imposed scope limitations?
If the audit is required by law or regulation and you can issue a disclaimer
If you can issue a qualified opinion or if the scope limitation is beyond management’s control
What are the required contents of the engagement letter?
Objective and scope Responsibilities of auditor Responsibilities of management Statement about unavoidable risk ID of framework Reference to form and content of reports
What are the three types of fraud?
Financial statement fraud
Asset misappropriation
Corruption
What things should be addressed when revising the terms of the engagement in a recurring audit?
Indication that management misunderstood the scope or objective
Special engagement terms
Significant change in ownership
Change in senior management
Change in nature or size of the business
Change in legal or regulator requirements
Change in framework
What is specifically mandatory in initial audits?
Communication with predecessor auditor before acceptance (with client’s permission)
What should you ask the predecessor auditor about in an initial audit?
Management integrity
Disagreements with management
Reasons for change of auditor
Communication to management regarding fraud
Review their workpapers (not engagement letter)
What is the auditor’s responsibilities regarding opening balances?
Obtain sufficient appropriate audit evidence regarding misstatements and if the accounting policies have been consistently applied
