Pre-Engagement Activities Flashcards
In this stage, there are considerations
- self-evaluation
- client evaluation
Self - Evaluation
- competence
- independence
- ability to serve the client properly
Client Evaluation
- integrity
- auditability
PRE - ENGAGEMENT ACTIVITIES (ACCT)
- Acceptance or Continuance of client relationship
- Evaluate Compliance with ethical requirements + independence
- Establish understanding of the Terms of engagement
An auditor will accept or continue engagement only when
- Preconditions of audit → ✔
- Common understanding between auditor and management → ✔
What are the preconditions of audit?
- Acceptable FRF
- Management Responsibility (for FS and IC)
- Unrestricted access to necessary information necessary for the audit
MATTERS TO TALK WITH PREDECESSOR AUDITOR (RID)
Successor auditor will initiate communication (with consent of client)
- Reasons for change of auditor
- Integrity of management
- Disagreements
What if i am unable to audit a client? What should I do as an auditor? Should I decline already? (4 steps)
- Gather knowledge
- Hire experts
- Recommend another auditor
- Decline
Is engagement letter (written) always required?
Not always
CONTENT OF ENGAGEMENT LETTER
- Financial Reporting Framework
- Objective and Scope
- Responsibilities (Auditor and Management)
- Fees → must not be based on current year NI
- Report Format → Audit, Review
Familiarize
Last year, I audited Jollibee. This year, I will audit them again. Do i need to send a new engagement letter?
4R
Generally : No need to send
XPN (4R):
- Revisions, Reword (client misunderstands)
- Required by law
- Remind (change in top mngt., nature, size)
When the auditor of a parent entity is also the auditor of its components, consider the ff. whether to send a separate engagement letter (CLOSI)
- Who appoints Component auditor
- Legal requirements - audit appointments
- Degree of Ownership by parent
- Whether a Separate audit report is to be issued on the component
- Degree of Independence of component from parent
The more independent the component is from the parent, the more it is likely to send a new letter.
Listed company = all subsidiary must have auditor
If the parent is the one who appointed the auditor of its component, do that auditor need to send a separate engagement letter?
No (parang tanga lang)
If the auditor of the component is appointed by the component, NEED to send. (since iba yung auditor ng parent, sa auditor ng component)
I can change the engagement from assurance to non assurance. True or False?
I can change the engagement from audit to review. True or False?
False
Depends (if it is justified)
If it is justified
- stop performing the old engagement
- start performing the new engagement
What if not justified?
continue the original
- if prohibited, withdraw + communicate reasons
