Pre-Engagement Planning Issues Flashcards
“Acceptance and continuance of clients and engagements” is one of the 6 elements of a quality control system, what does it mean?
1 Auditors should avoid clients whose management lacks integrity or clients who are viewed as too risky owing to industry considerations or entity-specific issues.
2 The auditor should also evaluate the compliance with applicable ethics requirements
What is Terms of Engagement?
Addresses the auditor’s responsibilities in agreeing upon the terms of the audit engagement with management (and those charged with governance, when appropriate)
What’s the Auditor’s Objective?
Is to accept an audit engagement involving a new or existing audit client only when the basis for the audit has been agreed upon by (1) establishing when the preconditions for an audit are present; and (2) confirming that a common understanding of the terms of the engagement exists between the auditor and management
What are Preconditions for an Audit?
To determine whether the financial reporting framework to be applied in the preparation of the financial statements is acceptable and obtain the agreement of management that it acknowledges and understands its responsibility
What is the entity’s Management responsibilities?
1 The fair presentation of the financial statements
2 The design and implementation of effective internal control over financial reporting
3 Providing the auditor with all information relevant to the financial statements and any additional information requested
What does Limited Engagement mean?
When management imposes a limitation on the scope of the audit that the auditor believes would result in a disclaimer of opinion
The agreement of the terms of the engagement should be documented in an audit engagement letter and address the following….
a The objective and scope of the audit
b The auditor’s responsibilities
c Management’s responsibilities
d A statement about the inherent limitations of an audit
e A statement identifying the applicable financial reporting framework
f Reference to the expected content of any reports to be issued
g Other matters as warranted in the auditor’s judgment
What if the auditor is asked to change the audit engagement to an engagement resulting in a lower level of assurance?
The auditor should determine whether reasonable justification for doing so exists; if not, the auditor should decline the request
What if the auditor concludes no reasonable justification for such a change exists, but management will not permit the auditor to continue the original audit engagement?
The auditor should: (a) withdraw from the audit engagement when possible; (b) communicate the circumstances to those charged with governance; and (c) determine whether there is any legal or other obligation, to report the matter to any other parties
When is it a Reasonable basis for a Change to the terms?
When there is a change in circumstances affecting management’s requirements, or if there was a misunderstanding about the nature of the service originally requested
Acceptance of a Change in the Terms of the Audit Engagement should not be accepted when?
There is no reasonable justification for doing so exists
