Chapter 5 (Acceptance procedures) Flashcards
what are preliminary activities?
what are preliminary activities?
these are activities performed by an auditor before start of each engagement.
these include:
- perform acceptance and continuance procedures.
- ensure preconditions, and agree on terms of engagement.
what are acceptance and continuance procedures?
or factors to be considered before acceptance:
these include determining
whether:
1.audit firm has sufficient staff, technical competence, necessary time and resources to perform the engagement.
2. integrity of owners, directors and management of client.
3. whether film and engagement team can comply with legal and ethical requirements(particularly related to independence)
4. auditor also consders significant matters arose during prvious engagements.
5. preonditions of audit and report.
if any threats are identified,that must be addresse by auditor and further procedures should be performed to reduce the threats.
what are threats and auditors’ procedures before/at the time of acceptance as per code of ethics.
acceptance of new client may create:
- self-interest threat to compliance with principle of integrity and professional behaviour because client may be involved in illegal activities or questionable financial reporting practices.
- self-interest threat to compliance with principle of professional competence and due care if firm is not competent to perform the engagement.
name possible threats at the time of acceptance.
- threats to integrity and professional behaviour
- threats to professional competence and due care.
which factors are relevant to evaluate self-interest threat to integrity or professional behaviour?
- knowledge and understanding of client, its owners, management and TCWG.
- client’s commitment to address the questionable issues e.g., through improving corporate governance practises or internal controls.
which factors are relevant to evaluate self-interest threat to professional competence and due care behaviour?
- understand nature of client’s business, complexity of operations, purpose and scope of engagement.
- knowledge of relevant industries or subject matter.
- experience with relevant regulatory or reporting requirements.
- existence of firm’s quality control policies and procedures designed to provide reasonable assurance that specific agreements are accepted only when they can be performed competently.
what are safeguards to address the threats to integrity and professional behaviour?
- send professional clearance letter to predecessor auditor.
- obtain information from other sources.
what are safeguards to address the threats to professional competence and due care?
- agree realistic time frame for performance of the engagement.
- assign sufficient staff with necessary skills.
- using experts where necessary.
what would be the auditor’s procedure after accepting client or engagement?
- auditors shall communicate its consent to client’s company before AGM.
- auditor should ensure the removal of predecessor auditor, and appointment of the auditor is accordance with legal requirements (e.g., through minutes of AGM).
appointment should be properly documented.
3. auditor should prepare and submit engagement letter to the client.
what would be the communication with the predecessor auditor? (With respect to professional clearance)
as part of acceptance procedure, every incoming auditor writes professional clearance letter (or NOC letter)
there are two procedures.
- procedures by incoming auditor.
- procedures by outgoing auditor.
what are procedures by incoming auditor? (with respect to professional clearance).
- obtain written permission from client to contact with predecessor auditor (due to confidentiality principle).
- if client gives permission, write letter to predecessor auditor to identify any matters relevant to acceptance decisions.
- if client does not give permission, this will be a scope limitation before acceptance.
incoming auditor should not accept the engagement. - if predecessor auditor responds indicating some issues affecting acceptance decison, inoming auditor may still accept the engagement after applying necessary safeguards.
- if predecessor auditor does not respond, proposed auditor should try to obtain relevent information from other souurces(e.g., through inquires of third parties or background investigation regarding senior anagement or TCWG.)
what are procedures by outgoingg auditor? (with respect to professional clearance).
- obtain written permission from client to reply to incoming auditor (due to confedentiality principles)
- if permission is given by client, write as soon as possible to proposed auditor honestly stating the relevant facts.
- if client does not give permission, inform proposed auditor abount non-permission. this will be scopelimitation before accetance.incoming auditor shall not accept the engagement.
what would be the work complementary/additional to existing charted accountant/second opinion?
threats:
threat to professional competence and due care due to lack of information.
safeguards:
- propsed accountant shous nottify existing accountant of the proposed work.
- existing acountant shall provide ay rlevent information needed for the proper conduct of work.
- one copy of opinion is sent to existing accountant.
