Initial Audit Engagement

Question 1

Consideration before accepting client

Answer 1

1. Independence
   - Incorporate CPC
2. Offering non-assurance services
   - Incorporate CPC
   - Only okay if not public interest entity
   - Not a PIE if not listed (apply other factors)
   - Implementation of safeguards
3. Look at what they are doing wrong and include application of:
   - CPC
   - Companies Act and apply requirements
   - Conclude if application of CoAct is permissible or not
4. Management integrity and business standing
   - Contraventions of ISA and elaborate on it
5. Risks considerations
   - 3rd party reliance
   - Auditors liability due to the third party reliance
   - Since not previously audited OB not audited
   - Tight deadline no sufficient time to complete audit procedures

Conclusion: Co should consider whether they’ll be able to address these risks appropriately in the audit otherwise should not be accepted

Question 2

Pre engagement activities

Answer 2

1. Do I want to perform the audit?
2. Am I able to perform the audit?
3. Are there ethical considerations?
4. Are there statutory reasons?

• Engagement letter to know the responsibility of auditors and management
• Need financial reporting framework. (eg using IFRS etc) to measure audit against

Question 3

General notes on initial audit engagement

Answer 3

ISA 510
ISA 210
ISA 710
ISQC1, ISA 220 
CPC 
Co Act

Question 4

Acceptance of new client

Answer 4

1. Willing to accept
   - No obligation
   - Auditor risk (Auditor liability)
   - Client Risks
   * Significant risk
   * Management integrity
   * Scope limitations
   * Fees
   - Prior auditor (vacancy)
   * Consider CPC
2. Possible to accept
   - Skills and knowledge
   - Resources
   - Time
   - Technology
3. Ethical considerations
   - SAICA CPC (Threats and Independence)
4. Statutory requirements

Question 5

Acceptance and continuance of client’s

Answer 5

ISQC1/ ISA 220

• Firm policies and procedures
• Competence
• Ethical requirements
• Integrity of client
• If audit is not accepted, it might not be possible to gather sufficient audit evidence to base group opinion (scope limitation)
• Requirement of holding company that all subs are audited by the same audit firm