Chapter 5 Flashcards
1
Q
Define Preliminary Engagement Activities.
A
- Perform Acceptance and Continuance Procedures.
2. Ensure Preconditions, and Agree on the terms of Engagement.
2
Q
What factors are required to be considered before acceptance of an engagement.
A
- Whether the audit firm has sufficient staff, technical competence, necessary time and resources to perform the engagement.
- Integrity of owners, directors and management of client.
- Whether the firm and engagement team can comply with legal and ethical requirements.
- Auditor also considers significant matters arose during previous engagement.
if threats are identified, they must be addressed by auditor.
3
Q
Threats that may arise before/at Acceptance.
A
- Threat to Professional Competence and due care may arise if firm is not competent to perform the engagement.
- Threat to Integrity or Professional Behavior may arise if client is involved in illegal activities or questionable financial reporting practices.
4
Q
Factors to Evaluate threat to Professional Competence and due care and their relevant safeguards.
A
Factors include:
- Understand nature of client business, complexity of its operations, purpose and scope of engagement.
- Knowledge of relevant industries or subject matter.
- Experience with regulatory or reporting requirements.
- Existence of firm’s quality control policy and procedure designed to provide reasonable assurance that specific engagements are accepted only when they can be performed competently.
Safeguards include:
- Agree realistic time frame to performance of engagement.
- Assign sufficient staff with necessary skills.
- using expert when necessary.If threats cannot be reduced, Auditor should not accept the engagement.
5
Q
Factors to Evaluate threat to Integrity or Professional Behavior and their relevant safeguards.
A
Factors include:
- Knowledge and understanding of client, its owners, management and TCWG.
- Client’s commitments to address the questionable issues (e.g) through improving internal controls.
Safeguards include:
- Send Professional Clearance letter to predecessor Auditor
- Obtain information from other sources.
If threats cannot be reduced, Auditor should not accept the engagement.
6
Q
Auditor procedures after accepting Client.
A
- Auditor should communicate its consent to client company before AGM.
- Auditor should ensure that removal of predecessor auditor, and appointment of auditor is in accordance of legal requirements. Appointment should be properly documented.
- Auditor should prepare and submit the engagement letter to client.
7
Q
Procedures by incoming Auditor on Professional Clearance Letter.
A
- Obtain written permission from client to contact predecessor. If client does not give permission, this is s scope limitation by management, before acceptance. Auditor shall not accept this engagement.
- If predecessor auditor does not respond, proposed auditor should try to obtain relevant information from other sources.
- If response from predecessor auditor indicates some issue affecting acceptance decision, incoming auditor may still accept the engagement after applying necessary safeguards.
8
Q
Procedures by outgoing Auditor on Professional Clearance Letter.
A
- Auditor shall comply with relevant legal and ethical requirements relating to such communication and disclosure.
- Obtain written permission from client to reply to incoming auditor.
- If client does not give permission, Inform proposed auditor about non-permission. This is a scope limitation before acceptance, auditor shall not accept this engagement.
- If permission is given by client, write as soon as possible to incoming auditor stating the relevant facts honestly.
9
Q
Threats and safeguards to Second Opinion.
A
Threat to professional competence and due care arises due to lack of information.
Safeguards include:
- Proposed CA should notify the Existing CA of the proposed work.
- Existing CA should provide any relevant information needed for the proper conduct of work.
- One copy of opinion is sent to existing auditor.
