Module 4: Accepting Audit Clients and Agreeing Terms

Question 2

What are the preconditions for an audit?

Answer 2

1. Determining whether the financial reporting framework used for preparing financial statements is acceptable
2. Confirmation with those charged with governance that they:
   * Confirmation of step 1
   * Ensuring proper internal controls
   * Provide access to all records, information and persons relevent to the audit

Question 3

Communications with previous auditor

Answer 3

• Permission from client
• Purpose is to know** areas of concern**
• no permission from client = refuse the engagement
• Information can be relevent to engagement team
• engagement partner is required to consider information given

Question 4

What is an audit engagement letter? 

Answer 4

acts as a contract between the practitioner and the client, serving to protect both parties and reduce the risk of misunderstandings in relation to the engagement

Question 5

What does audit engagement letter contain (compulsory)?

Answer 5

• Objective and scope
• Reponsibilities of auditor
• responsibility of governance
• Identification of applicable financial reporting framework
• expected form and content of any reports and circumstances where the report may differ

Question 6

What does audit engagement letter contain (optional)?

Answer 6

• Baisis of audit fees and billing details
• Arrangements regarding planning and performance

Question 7

What are the engagement letter requirements for recurring audit engagements? 

Answer 7

• client has misunderstood the objective or scope
• any revised or special terms of the audit engagement.
• significant changes of senior management.
• significant changes in ownership of the entity.
• significant changes in legal or regulatory requirements.
• change in the **financial reporting framework **
• a significant change in the nature or size of the client’s business.
• change in other reporting requirements.