Engagement Acceptance Flashcards
What is the Audit Committee responsible for?
The selection and appointment of the external auditor
What should the auditor consider about the firm as part of pre-acceptance activities?
The firms quality control policies and procedures related to client acceptance and continuance, including:
- the firm’s ability to meet reporting deadlines and staff the engagement
- the firms independence,
- the integrity of client management
- whether appropriate evidence can be obtained on group audits
What preconditions for an audit should the auditor ensure are present prior to accepting an audit engagement with a new or existing audit client?
- The auditor should ascertain if the financial reporting framework used by the client is acceptable
- the auditor should obtain the agreement of management that it acknowledges and understands its responsibility for:
a. the fair presentation of the FS
b. establishing IC over the preparation andpresentation of FS, to ensure they are free from material misstatements due to fraud or error; and
c. providing the auditor access to information that is relevant to the preparation and presentation of the FS. - The auditor should not accept the engagement if there will be a scope limitation imposed by management or those charged with governance.
What are the required contents of the engagements letter?
- the objective and scope of the audit
- the responsibilities of the auditor
- the responsibilities of management
- a statement that because of inherent limitations of an audit an unavoidable risk exists that some material misstatements may not be detected.
- Identification of the applicable financial reporting framework
- Reference to the expected form and content of any reports to be issued by the auditor.
When is communication with the Predecessor Auditor mandatory before accepting an engagement?
on initial audits.
On initial audits, should the auditor make oral or written inquiries of the predecessor auditor before accepting the engagement? What should the inquiries regard?
The inquiries can be oral or written and should be made regarding:
- info that might bear on management integrity
- disagreements with management over accounting principles, auditing procedures
- the predecessor’s understanding as to the reasons for the change of auditors; and
- communication to management, the audit committee, and those charged with governance regarding fraud, noncompliance with laws and regulations, and matters relating to internal control.
What is the auditor’s responsibility regarding opening balances in initial audits and reaudit engagements?
the auditor should obtain sufficient appropriate audit evidence about whether:
a. Opening blances contain misstatements that could materially affect the current period FS
b. Accounting policies reflected in the opening balances have been consistently applied in the current period FS
What audit procedures should the auditor take to obtain sufficient appropriate evidence regarding opening balances?
the auditor should:
- read the most recent FS, if any, and the predecessor auditor’s report
- request management to authorize the predecessor auditor to allow a review of the predecessor auditor’s audit documentation related to the most recently completed audit
- perform audit procedures on current period transactions that provide evidence about the opening balances or consistency
What is required before accepting a new audit engagement?
Inquiries of the predcessor auditor regarding:
- information about management integrity
- disagreements with management over accounting principles, or audit procedures
- the predecessor’s understanding as to the reason for the change of auditors
- communication to management, the audit committee, and those charged with governance regarding fraud, noncompliance with laws and regulations, and matters relating to internal control
