Set 1 - AU Chapter 3 - Client Acceptance

Question 1

What four factors should be considered when determining whether to accept a new client or continue with an existing arrangement?

Answer 1

#1 - integrity of management/owners/those charged with governance
#2 - competence of engagement team, and if they have necessary resources and time
#3 - whether firm and engagement team can comply with ethical requirements
#4 - significant matters arisen during current or previous engagement and their implications for continuing relationship

Question 2

Name 4 procedures auditors can undertake to verify integrity

Answer 2

#1 - communicate with previous auditor
#2 - communicate with independent third parties, such as lawyers or creditors
#3 - perform a background check
#4 - obtain and scan financial statements from prior periods

Question 3

What other factors must auditor consider before accepting?

Answer 3

• Applicability of financial reporting framework
• Any threats to independence
• Understanding of user requirements - can user mitigate or accept risk factors? Varies depending upon complexity/nature of business/needs of users/history of breaking rules/clients reputation etc.
• Any industry legislations that may affect the audit
• Has client accept management responsibilities in writing?
• Any scope limitations?

Question 4

What three things should management agree to in writing before audit acceptance?

Answer 4

#1 - management prepares the financial statements in accordance with appropriate financial reporting framework
#2 - operating internal controls are in place
#3 - management will provide free, non-restricted access to all required information and people

Question 5

What two conditions per CAS 210 should an auditor decline an engagement?

Answer 5

#1 - when management doesn't agree to responsibilities in writing.
#2 - when the financial reporting framework is not acceptable.

Question 6

Once accepted, an engagement letter is drafted. What 6 aspects are commonly part of the engagement letter? (CAS 210)

Answer 6

#1 - objective and scope of audit
#2 - responsibilities of practitioner
#3 - responsibilities of management
#4 - identification of financial reporting framework
#5 - reference to form and contents of audit reports and agreement these may change under certain circumstances
#6 - any billing arrangements and basis on which fees are calculated