M3 Pre-engagement Activities

Question 1

What are the main considerations you need to remember when deciding whether to accept an assurance engagement or not?

Answer 1

• Is it legal accept this client
• do you have capacity? (quality audit)
• Is it a good business decision?
• Is it ethical to accept this client?
• Have they agreed to the terms of the contract?

Question 2

What legal considerations are there in accepting a client?

Answer 2

• scope limitation
• requirements in companies Act for appointing an Auditor?
• is your Audit company breaching anything in the APA, like sharing profits with non auditors?

Question 3

What Quality considerations are there in accepting a client?

Answer 3

• Do we have the resources?
• Do we have the knowledge?
• do we have the capacity?

Question 4

What good business considerations are there in accepting a client?

Answer 4

• have they ever been audited before? if not, can we recover the initial costs of this from the client?
• what does the integrity of management look like? are they going to be hiding things from us or?
• will we get chosen for further future audits?
• will it be a good thing to be publically associated with this company?
• Will they be able to pay us by the end of the Audit?
• Will we get sued by them if we produce a report that they do not like?

Question 5

What Ethical considerations are there in accepting a client?

Answer 5

SAICA COPC
- the relevant sections
* section idk
~ are we providing professional services to them such as accounting and related, because this MIGHT be alright if the threat isnt significant and they are a private company but if they list or become public, it will be a problem
~ it provides a self-review threat to their objectivity
- the type(s) of threat(s) being experienced
- the fundermental principle(s) being threatened
- the reasons for the threats
- the significance of the threat
- possible safeguarding methods

Question 6

What terms and condition considerations are there in accepting the client?

Answer 6

• ISA 210
• requires that auditor and client MANAGEMENT agree on the terms and conditions of the audit
• Have all the necessary things needed in the letter been said? (think format)
• Has the letter been accepted before work starts?
• Is another engagement letter needed?

Question 7

What does the format of an engagement letter look like?

Answer 7

1. Title
2. Addressed to
3. Identification of the applicable financial reporting framework
4. Managment responsibilities
5. Auditor’s responsibilities
6. Admin matters
7. limitation of liability of Auditor for the service
8. Provision to show acceptance

Question 8

Can the terms of an engagement letter get changed?

Answer 8

• Cannot be changed by the Auditor
• can be changed by the Client if they have a valid reason for the change
• If valid reason, consider the following
• Legal implications
• New engagement letter (don’t reference the old one)
• If no valid reason
• Don’t agree to the change
• If not permitted to continue withdraw
• Consider if you need to report the matter

Question 9

When does an Auditor get rotated?

Answer 9

• The companies Act s92 says that the same individual (or designated auditor in the case of a firm having been appointed) may not serve as auditor for more than 5 consecutive years.
  If serving at least 2 or more consecutive years, the auditor may not be re-appointed after at least expiry of 2 further financial years.
• the SAICA code specifies that a firm needs to be rotated at certain points as well…. it could have been changed in the later standards however