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Assurance > Obtaining an engagement > Flashcards

Obtaining an engagement Flashcards

1
Q

What are the key methods of obtaining an engagement? (2)

A

AT

  1. Advertising
  2. Tender
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2
Q

What should an auditor consider before accepting an appointment? (5)

A

MANIC

  1. Have we assessed the level of MANAGEMENT INTEGRITY?
  2. Do we have ADEQUATE RESOURCES available?
  3. NATURE of engagement; have we assessed the level of RISK?
  4. IDENTIFICATION; have we fulfilled requirements to comply with the Money Laundering Regulations 2007?
  5. Have we COMMUNICATED with existing or previous auditors?
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3
Q

What evidence should be obtained from a client when considering a new appointment? (3)

A

FIM

  1. Financial statements
  2. Internal audit reports
  3. Management accounts
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4
Q

What information should be obtained from external sources when considering a new appointment? (5)

A

BLICS

  1. Bankers
  2. Laws and regulations
  3. Internet search
  4. Credit ratings
  5. Solicitors
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5
Q

What decision must an assurance firm make if this is a potential new client’s first audit?

A

Prospective auditors can make their own decisions and accept/reject the appointment as they see fit

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6
Q

What decision must an assurance firm make if this is not a potential new client’s first audit?

A

The assurance firm must ask permission to contact the old auditor.

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7
Q

What decision must an assurance firm make if a potential new client does not give permission to contact the old auditor?

A

The prospective auditor should normally decline the appointment.

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8
Q

What decision must an assurance firm make if a potential new client does give permission to contact the old auditor?

A

The prospective auditor should request all relevant information

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9
Q

What decision must an assurance firm make if a potential new client does not give the old auditor permission to reply to the prospective auditor when requesting information pertaining to this client?

A

The prospective auditor should normally decline the appointment.

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10
Q

What decision must an assurance firm make if a potential new client’s old auditor does not provide relevant information after it is requested?

A

The prospective auditor should chase the response. If they still do not reply then the prospective auditor should decide on the appointment using information that is available.

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11
Q

What identification is needed in order to comply with the Money Laundering Regulations 2007?

A
  1. Photographic identification and other documents confirming name and address is needed for individuals
  2. Identification from Companies House is needed for companies
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12
Q

According to Money Laundering Regulations 2007, how long must client identification documents be kept for?

A

A minimum of five years and until five years and until five years have elapsed since the relationship with the client has ceased.

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13
Q

What are the steps that an auditor must take after accepting an engagement? (3)

A

LEON

  1. Prepare and submit a LETTER of ENGAGEMENT to the directors of the company
  2. Ensure OUTGOING auditors’ removal/resignation has been properly conducted
  3. Ensure NEW auditors’ appointment is valid
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14
Q

What is the purpose of an audit engagement letter? (4)

A

TERM

  1. To clarify the TERMS of the engagement
  2. Narrow the EXPECTATIONS GAP
  3. Define the extent of firm’s and management’s RESPONSIBILITIES
  4. Minimise potential for MISUNDERSTANDING between client and firm
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15
Q

When is an audit engagement letter issued?

A

As soon as possible after the auditors have accepted nomination

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16
Q

Who should an audit engagement letter be sent to?

A

All clients

17
Q

What sort of engagements is an audit engagement letter used for?

A

All kinds of assurance engagements

18
Q

Which ISA covers the content of an engagement letter?

A

ISA 210

19
Q

Under what terms does ISA 210 require the auditor to agree to the engagement?

A
  1. In writing
  2. Soon after the appointment
  3. When circumstances change
20
Q

According to ISA 210, what must an engagement letter include? (6)

A

FFOAMS

  1. Reporting FRAMEWORK
  2. FORM of any reports
  3. OBJECTIVES of work/auditor’s responsibilities
  4. Level of ACCESS to books and records
  5. MANAGEMENT’S responsibilities
  6. SCOPE of work
21
Q

According to ISA 210, what may an engagement letter include? (6)

A

ICIFER

  1. INHERENT LIMITATIONS of the engagement
  2. CONFIDENTIALITY/restricted circulation/use of report
  3. Arrangements regarding reliance on INTERNAL AUDIT
  4. Basis of FEE CALCULATIONS
  5. EXPECTATION regarding written management representations
  6. RESTRICTIONS on auditor’s liability

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