Module 4 Accepting Audit Client and Agreeing terms of engagement

Question 1

What are the main acceptance procedures a practitioner should perform when gathering information about a potential client?

Answer 1

• Identify the users and the nature of the engagement
• Risk analysis
• Evaluate the firm’s ability to undertake the assurance engagement
• Agree the basis for performance of the assurance engagement

Question 2

Statutory audits have additional considerations imposed by standards and regulations. These include:

Answer 2

1) Preconditions for an audit
2) Communicating with the outgoing auditor

Question 3

What are the preconditions for an audit?

Answer 3

1) Determining whether the financial reporting framework used for preparing financial statements is acceptable

2) Confirmation from those charged with governance that they understand their responsibilities for:

• Preparing financial statements in accordance with the financial reporting framework
• Ensuring proper internal controls over the preparation of financial statements are in place
• Providing the auditor with access to all records, information and persons relevant to the audit

Question 4

If the client does not give permission to approach the outgoing auditor, the auditor should normally?

Answer 4

Refuse the engagement

Question 5

What is an audit engagement letter?

Answer 5

Once the auditor has decided that an audit engagement can and will be accepted the terns of engagement must be agreed with the client. The agreed terms should be documented in an engagement letter.

Question 6

What does an audit engagement letter contain?

Answer 6

1) The objective and scope of the audit
2) The responsibilitlies of the auditor
3) The responsibilities of those charged with governance
4) Identification of the applicable financial reporting framework for the preparation of the financial statements
5) Reference to the expected form and content of any reports to be issued by the auditor, including a statement that there may be circumstances in which a report may differ from the expected form and content.

Question 7

What else could be in an audit engagement letter?

Answer 7

• basis of audit fee and billing details
• arrangements regarding the planning and performance of the audit, such as the composition of the audit team

Question 8

Are audit engagement letters required for recurring audits?

Answer 8

NO

However many firms do this as good policy

Question 9

It may be appropriate to issue a new engagement letter if:

Answer 9

• There is an indication the client has misunderstood the objective or scope
• Any revised or special terms
• Significant changes to senior management
• Significant changes to ownership of the entity
• Significant changes in legal or regulatory requirements
• Change in the financial reporting framework
• Significant change in the nature or size of the clients business
• Change in other reporting requirement’s