Preliminary Engagement Activities

Question 1

Objective of Preliminary Engagement Activities

Answer 1

Make a decision whether or not to accept a new client or continue with the existing one

Question 2

Major procedures in Preliminary Activities

Answer 2

1. Its competence
2. Independence
3. Ability to serve the client properly
4. The integrity of the prospective client’s management

Question 3

Specific procedures in Preliminary Engagement Activities

Answer 3

1. Obtain preliminary knowledge about client’s business and industry
2. Consider whether there are threats to firm’s independence and objectivity
3. Evaluate firm’s ability to serve the prospective client
4. Evaluate the auditability
5. Investigate the integrity of the prospective client’s management

Question 4

Matters to be discussed with predecessor auditor

Answer 4

1. Reason for change of auditors
2. Information that might bear on the integrity of the management
3. Disagreements between the predecessor auditor and management

Question 5

Who initiates the communication with the predecessor auditor?

Answer 5

The proposed auditor with the client’s consent

Question 6

Preconditions of an Audit

Answer 6

1. Management uses an acceptable reporting framework in preparation of FS
2. The agreement of management and those charged with governance to the premise on which the audit is conducted

Question 7

Form and Content of Engagement Letter

Answer 7

1. Objective and Scope of the Audit
2. Responsibilities of Auditor and Management
3. Identification of Financial Reporting Framework
   4.Reference to expected form and content

Question 8

Form and Content of Engagement Letter

Answer 8

1. Objective and Scope of the Audit
2. Responsibilities of Auditor and Management
3. Identification of Financial Reporting Framework
   4.Reference to expected form and content if any report issued by the auditor

Question 9

In a recurring audit, when to send a new engagement letter

Answer 9

1. Change in governance and management
2. Change in framework applicable
3. Change in regulatory requirements

Question 10

Response to change in management

Answer 10

1. If auditor and management agreed on the new terms, a new engagement letter shall be made
2. If the auditor doesnt agree on the change, he may withdraw from the engagement and determine whether there is any obligation to report the circumstances to other parties