pre-engagement activities

Question 1

CPC standard

Answer 1

Professional appointments- S320

Question 2

Agree the terms of Audit engagement

Answer 2

Engagement letter ISA210

Question 3

Answer 3

Question 4

Answer 4

Question 5

Answer 5

CPC
KING IV
CO ACT
APA
ISQM 1 , ISA 220
ISA 210

Question 6

Structure of answering Pre-engagement activities

Question 7

Perform a client investigation, considering the following:

Answer 7

Whether the firm is independent of the client, and whether there are any threats to the
fundamental principles outlined in the Code of Professional Conduct
- The client’s business standing, the integrity of management and the apparent riskiness of
the client (this is a high-level risk assessment. A more detailed assessment is performed
during planning).).
- Consider management’s commitment to corporate governance principles (this is also
performed at a high level. A more detailed assessment is performed during planning).
- Whether the client’s audit committee nominated the firm and approved any non-audit
services in terms of S94
- Where it is a new client, whether the previous auditors were legally dismissed in terms of
the Companies Act
- Whether there is any conflict of interest with the firm’s existing clients or other
engagements
- Whether the client is able to pay the audit firm on time

Question 8

Consider whether the firm has the necessary knowledge, skills, time and staff to conduct the
audit and obtain reasonable assurance that the financial statements are fairly presented, as
required by the Code of Professional Conduct.

Question 9

Where the firm is replacing an existing auditor:

Answer 9

Request permission from the client to communicate with the existing auditor
- Once permission has been granted, enquire of the existing auditor whether there is any
reason not to accept the engagement, treating all information received in the strictest
confidence
- If the client refuses to give permission, decline to accept the engagement
(From section 320 of the Code of Professional Conduct)

Question 10

If the audit is accepted, the auditor should confirm the engagement and conditions in an
engagement letter which:

Answer 10

Outlines management and the auditor’s responsibilities with regards to the audit
- Specifies any non-audit services to be performed by the auditor

Question 11

Prior to accepting the audit, we would have:

Answer 11

Considered whether accepting the client meets the firm’s criteria for professional
relationships (e.g. integrity of management, etc.)
* Assessed our independence.
* Considered any conflict of interest with existing clients.
* Assessed whether we have the necessary competence, time and resources to perform the
audit. (ISA 220R)
* Informed the client that we cannot accept appointment until the client has informed their
existing auditors of their intention to change and given them permission to discuss their affairs
with us.
* Obtained consent to communicate with the existing auditors.
* After the client had informed the existing auditors, we would have communicated with the
existing auditors and enquired whether there was any professional reason which would
prevent us from accepting appointment.
* Considered the terms of the engagement, discussed these with the client and, in due course,
prepared an engagement letter.
* Assessed whether the Companies Act requirements related to our appointment were met.
(Companies Act S.85(3) and S.90).
* We should not have taken any steps to secure appointment.