Chapter 6

Question 1

What should be considered prior to tendering or acceptance the auditor?

Answer 1

• Nature of the business
• Management integrity
• Potential risk of misstatements
• Reliance of others on the audit report
• Quality of accounting system
• Staff & time available
• Reputation issues
• Ability to make a profit
• Objectivity

Question 2

What are the contents of a tender?

Answer 2

• Background
• Experience of firm
• Knowledge of staff
• Location
• Other Services
• Proposed fee

Question 3

What are factors that influence fee calculations?

Answer 3

• Complexity
• Time
• Approach required
• Expenses
• Urgency
• Need for experts

Question 4

What are the 3 people included in the accepting engagement process?

Answer 4

• The Client
• Proposed Auditor
• Previous Auditor

Question 5

Access to information by successor auditor

Answer 5

The previous auditor must allow successor access to all relevant information in respect of its audit work including:
- Access to working papers
- Assistance in providing oral and written explanations
- There is no obligations to allow copying of papers, but it would be considered reasonable to share and not a breach of confidentiality (client permission)

Question 5

Safeguards that would be included conflicts of interest

Answer 5

• Notifying the affected parties of the conflict of interest and obtaining permission to act/ continue to act
• Using separate engagement teams
• Procedures to prevent access to information
• Clear guidelines for members of the engagement team on issues of security and confidentiality
• The use of confidentiality agreements signed by employees
• Regular reviews of the application of safeguards by a senior individual not involved with the relevant client engagement

Question 6

Agreeing terms of engagement for audits

Answer 6

• The objective and scope of the audit of financial statements (including reference to applicable legislation)
• Management’s responsibilities (including the responsibility for the financial statements)
• The auditor’s responsibilities
• The form and content of reports and communications that will arise from the audit
• The fact that due to the test nature and other limitations of an audit
• The fact that auditors are entitled to unrestricted access to records

Question 7

What are the responsibilities of the removal of auditors?

Answer 7

• The auditor must write a statement of circumstances and deposit it at the company’s registered office explaining the circumstances of the removal.
• If no circumstances exist a ‘statement of no circumstances’ must be completed

Question 8

What are the rights of the removal of auditors?

Answer 8

• The auditor has the right to receive notice, attend and speak at the meeting appointing the new auditor(AGM).
• The auditor has the right to have written representations circulated to all the members.
• This latter point prevents directors inappropriately putting auditors up for removal when they have a disagreement with them giving the auditor the right to argue their case.

Question 9

What are the responsibilities of the resignation of auditors?

Answer 9

• The auditor must submit written notice to the company’s registered office and submit a statement of circumstances explaining the reasoning of their resignation.
• If no circumstances exist a ‘statement of no circumstances’ must be completed.

Question 10

What are the rights of the resignation of auditors?

Answer 10

• The auditor has the rights to request that the directors convene a general meeting, allowing the auditor to explain the reasonings.
• The auditor has the right to require the directors to circulate the statement of circumstances in advance of the meeting.