Engagement acceptance and understanding the assignment

Question 1

What are the 7 consideration that affect the reporting objectives, timing of the audit and communications required?.

Answer 1

1. The entity’s timetable for reporting, including interim periods
2. The organization of meetings with mgmt and those charged with governance to discuss the nature, extent and timing of the audit work
3. The discussion with management and those charged with governance regarding the expected type and timing of reports and communications to be issued.
4. The discussion with mgmt regarding the expected communications on the status of audit work throughout the engagement
5. Communication with auditors of components regarding the expected types and timing of reports to be issued and other communications in connection with the audit of components
6. The expected nature and timing of communications among engagement team members, including the nature and timing of team meetings and timing of the review of work performed.
7. Whether there are any expected communications with third parties, including any statutory or contractual reporting responsibilities arising from the audit

Question 2

What are the 14 considerations that affect the scope of the audit engagement?

Answer 2

1. The financial reporting framework on which the financial information to be audited has been prepared, including any need for reconciliations to another financial reporting framework
2. Industry-specific requirements (e.g. reports mandated by industry regulators)
3. The expected audit coverage
4. The nature of the control relationships between a parent and its components that determine how the group is to be consolidated (e.g. non-controlling minority interest, associated company, subsidiary)
5. The extent to which components are audited by other auditors.
6. The nature of the business divisions to be audited, including the need for specialized knowledge
7. The reporting currency to be used, including any need for currency translation for the financial information audited.
8. The need for statutory or regulatory audit requirements
9. The availability of the work of internal auditors and the extent of the auditors and the extent of the auditor’s potential reliance on such work
10. The entity’s use of service organizations and how the auditor may obtain evidence concerning the design or operation of controls performed by them
11. The expected use of audit evidence obtained in prior audits
12. The effect of information technology on the audit procedures, including the availability of data and the expected use of computer-assisted audit techniques
13. The coordination or the expected coverage and timing of the audit work with any reviews of interim financial information and the effect on the audit of the information obtained during such reviews
14. The availability of client personnel and data.

Question 3

What are the 13 onsiderations that affect the scope of the audit?

Answer 3

1. Materiality:
   a. the determination of materiality for components and communication thereof to component auditors
   b. the preliminary identification of significant components and material classes of transactions, account balances and disclosures.
2. Audit areas where there is a higher risk of material misstatement
3. The effect of the assessed risk of material misstatement at the overall FS level on direction, supervision and review
4. The manner in which the auditor emphasizes to engagement team members the need to maintain a questioning mind and exercise professional skepticism in gathering and evaluating audit evidence
5. Results of previous audits that involved evaluating the operating effectiveness of internal control, including identified deficiencies and action taken to address them
6. The discussion of matters that may affect the audit with firm personnel responsible for performing other services to the entity
7. Management’s commitment to the design, implementation, and maintenance of sound internal control
8. Volume of transactions, which may be a factor in determining whether it is more effective for the auditor to rely on internal control
9. Importance attached to internal control throughout the entity to the successful operation of the business
10. Significant business developments affecting the entity, including changes in information technology and business processes; changes in key management; and acquisitions, mergers, and divestments
11. Significant industry developments, such as changes in industry regulations and new reporting requirements
12. Significant changes in the financial reporting framework, such as changes in accounting standards
13. Other significant relevant developments, such as changes in the legal environment affecting the entity.

Question 4

What 6 matters should be considered in accepting or continuing the client engagement regarding firm personnel?

Answer 4

Whether the firm personnel have:

1. knowledge of relevant industries or subject matters or the ability to effectively gain the necessary knowledge
2. experience with relevant regulatory or reporting requirements, or the ability to effectively gain the necessary competencies
3. technical expertise, including expertise with relevant IT and specialized areas of accounting or auditing
4. relevant industry knowledge
5. the ability to apply professional judgment and
6. an understanding of the firm’s quality control policies and procedures

Question 5

The firm should establish policies and procedures for the acceptance and continuance of client relationships and specific engagements, designed to provide the firm with reasonable assurance that it will undertake or continue relationships and engagements only where the firm has what 4 things?

Answer 5

1. it has considered the integrity of the principal owners, key management, and those charged with governance of the entity
2. is competent to perform the engagement and has the capabilities and resources to do so
3. can comply with legal and ethical requirements (including independence) and has significant findings or issues that have arisen during the current or previous audit engagement and their implications for continuing the relationship

Question 6

Define successor auditor

Answer 6

It refers to the person or persons conducting the audit, usually the engagement partner or other members of the engagement team, or, as applicable, the firm

Question 7

Define predecessor auditor

Answer 7

The auditor from a different audit firm who has reported on the most recent audited FS or was engaged to perform but did not complete an audit of the FS

Question 8

What 5 things should the successor auditor inquire the predecessor?

Answer 8

1. Information that might bear on the integrity of mgmt.
2. disagreements with mgmt. as to accounting principles, auditing procedures, or similarly significant matters
3. communications to those charged with governance regarding fraud and noncompliance with laws or regulations by the entity
4. communications to mgmt. and those charged with governance regarding significant deficiencies and material weaknesses in internal control
5. the predecessor’s understanding as to the reasons for the change of auditors