Process Of Assurance: Obtaining And Engagement

Question 1

2 key methods for obtaining an engagement

Answer 1

1. Tender
2. Advertising

Question 2

Factors to consider prior to accepting an engagement

Answer 2

1. Professionally qualified to act?
   (E.g. legal or ethical issues)
2. Communicated with last auditors?
3. Adequate resources?
4. AML client due diligence?
5. Assessed management integrity?
6. Assessed level of risk?

Question 3

Three types of info source relating to new clients

Answer 3

1. Client
   FS, internal audits, management accounts
2. External
   Credit ratings, bankers, solicitors, laws, regulations, internet
3. Auditor
   The previous auditor

Question 4

Accepting engagement process: First question

Answer 4

Is this first audit?

Question 5

Is this the first audit? Yes
Next step?

Answer 5

Prospective auditors can make own decisions

Accept/Reject

Question 6

Is this first audit? No

Answer 6

Does client have permission to contact old auditor?

Question 7

Does client have permission to contact old auditor? No

Answer 7

Should normally decline

Question 8

Does client have permission to contact old auditor? Yes

Answer 8

1. Request all relevant information
2. Does client give old auditor permission to reply?

Question 9

Does client give old auditor permission to reply? No

Answer 9

Should normally decline

Question 10

Does client give old auditor permission to reply? Yes

Answer 10

Does old auditor reply with relevant information?

Question 11

Does client give old auditor permission to reply? No

Answer 11

Chase response

If no reply decide based on available information

Question 12

Does client give old auditor permission to reply? Yes

Answer 12

Accept/Reject

Question 13

Client due diligence

Answer 13

AML obtaining correct identification

Question 14

AML: Check for individuals

Answer 14

Photo ID

Other documents confirming name and address

Question 15

AML: Check for companies

Answer 15

ID from companies house

Question 16

How long should client ID be kept?

Answer 16

At least 5y and 5y after client relationship ended

Question 17

Main procedures after accepting engagement

Answer 17

1. Ensure proper REMOVAL of outgoing auditors
2. Ensure VALIDITY of new appointment
3. Prepare and submit a LETTER OF ENGAGEMENT to the directors

Question 18

When is an engagement letter submitted?

Answer 18

After accepting nomination

Question 19

Engagement letters purpose and practicalities examples

Answer 19

Define extent of firm’s and management responsibilities

Minimise potential misunderstanding

Provide written confirmations

Sent to all clients
As soon as possible after appointment

Question 20

Engagement letter: need written confirmation of what 3 things?

Answer 20

1. Firm’s ACCEPTANCE of appointment
2. SCOPE of engagement
3. FORM of reports to be issued

Question 21

Engagement letters used for which assurance engagements?

Answer 21

All assurance engagements, not just statutory audits

Question 22

ISA (UK) 210: 6 things the engagement letter must include:

Answer 22

{engagement Letter FORMS a key part bla bla bla}

1. Level of access to books and records
2. Form of any reports
3. Objectives
4. Reporting framework
5. Management responsibilities
6. Scope of work

Question 23

ISA (UK) 210: Engagement letter may include

Answer 23

Inherent limitations of engagement

Expectation re. written management representation

Confidentiality

Arrangements re. reliance on internal audit

Restrictions on auditor’s liability

Basis of fee calculations