ISA 210: Agreeing the Terms of Audit Engagement Flashcards

1
Q

Preconditions (2+3)

A
  1. Establish that FRF are acceptable.
  2. Obtain premise of mgmt that they understand/acknowledge their responsibility:
    (a) for prep of F/S
    (b) for internal controls (to ensure no material misstatement in F/S)
    (c) to provide auditor with relevant and requested info + unrestricted access to all personnel.
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2
Q

What should an auditor do if the preconditions are NOT MET? (5)

A

Should not accept proposed audit (unless required by law):
- if FRF is unacceptable
- limitation of scope is imposed by management
- Management do not agree to premise

AND
- Discuss the matter with management
- Explain > 1 of the purpose of preconditions> avoid misunderstanding abt respective responsibilities.

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3
Q

Principal elements of audit engagement letter. (MAIN) (5)

A
  1. Objective and scope of audit.
  2. Responsibilities of auditor.
  3. Responsibilities of management.
  4. Identification of underlying FRF.
  5. Reference to expected form and content of any reports to be issued.
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4
Q

ADDITIONAL elements of audit engagement letter. (5+4)

A
  1. Fact that inherent limitation of audit and internal controls are unavoidable.
  2. Arrangements of planning and performance of audit.
  3. Expectation from mgmt of:
    - written representations
    - access to relevant info
    - making available draft F/S to auditor
    - inform auditor about events occurring after Auditors report
  4. Basis on which fees are computed + any billing arrangements
  5. Any obligations to provide audit working papers to other parties
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5
Q

What does auditor need to assess for recurring audit (2)

A
  1. Circumstances requiring revision in terms of engagement.
  2. Mgmt need to be reminded of existing terms of engagement.
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6
Q

Appropriate factors indicating need for change in terms (5+2+3)

A
  1. Indication that entity misunderstands current objective and scope of audit.
  2. Revised/special terms of the audit engagement.
  3. Recent change in senior mgmt.
  4. Significant change in:
    - ownership
    - nature or size of entity’s business.
  5. change in:
    - legal/regulatory reqs
    - frf adopted
    - other reporting reqs
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7
Q

Reasons for an entity to ask for change in terms of engagement? (3)

A

Entity might ask the change due to:
- genuine change in circumstances
- misunderstanding as to the nature of audit originally requested
- any limitation of scope from mgmt

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8
Q

Auditors response to entity’s request of change in terms of engagement. (3+2)

A
  1. consider justification and reasonableness of request.
  2. If reasonable => terms agreed and records
  3. If unable to agree change in terms:
    - withdraw from eng
    - considers if there is obligation to report this to TCWG
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