Pre- engagement activities

Question 1

Client

Answer 1

1. Association with industry:
   - Nature of the industry e.g. Technology obsolescence of products
2. Association with owners:
   - Reputation, attitude towards good governance and indicators
   - “Consider whether the directors and managers have the competency to
   manage the company, e.g. industry experience vs. qualifications”
3. Previous client-auditor relationship:
   - Consider relationship with previous auditor
   - Reasons for change of previous auditor
4. Sound business decision:
   - Stability and cashflow pressure of the client
   - Client able to settle the audit fees on a timely basis
   - Any associated costs in taking on the engagement, e.g. additional training.
   - Going concern
5. Risk of material misstatement (ROMM):
   - Internal control
   - Financial reporting system and audibility
   - Import transactions
   - complex calculations
   - Manipulate financial statements

Question 2

Auditor

Answer 2

1. Expertise necessary:
   
   • Identify services required by the client
   • Consider whether the audit team has the necessary knowledge to render the service.
   • Client industry
     2. Identify the audit team (staff members):
   • Ensure that sufficient qualified staff members are available
     3. Resources other than staff
   • Whether any specialists need to be appointed
   • Hardware, software
   • Audit deadline (enough time)

Question 3

Ethical

Answer 3

1. Evaluate Independence
   - Family or ties between shareholders
   - Any risk of relationship
2. Conflict of Interest
3. Information from previous auditors (CoPC) or third parties
   - Communicate with the previous auditor
   - Is the available information positive or negative
   - Always investigate why certain events happened

Question 4

Statutory

Answer 4

1. Eligibility to conduct audits
   - In terms of APA and Companies Act, I.e. an auditor should be registered with
   IRBA.
2. Companies Act requirements regarding the removal of the outgoing
   auditor and appointment of new auditor

Question 5

Knowledge

Answer 5

1. Enquiry from persons in the entity
   e.g. management, internal audit slatt
2. Enquiry from experts outside the entity
   - e.g. Industry economists, legal advisers
3. Analytical procedures
   -assist the auditor in obtaining knowledge about fluctuations or trends in the figure, and identifying extraordinary fluctuations
4. Observation
   - e.g. VIsit the client’s premises, observation of operating activities
5. Inspection of documents and records
   e.g. minutes of meetings, procedure manuals, marketing documentation,
   previous years financial statements etc.
6. Other information sources
   - Previous auditor’s working papers
   Publications and media (e.g. industry-related magazines, financial press)
   Legislation

Question 6

ISA 300

Answer 6

1. Consider the integrity of:
   -The client’s principal owners, key management and those charged with
   governance of the entity.
   -Reputation and attitude of these individuals should be evaluated.
2. Determine whether the firm is competent to perform the engagement
   -Assess their knowledge of the industry
   -Their technical competence
   -Consider whether audit deadlines are in reach
3. Comply with ethical requirements
   Possible conflict of interest
   -Threats to independence