Terms of the Engagement M3

Question 1

What will the Auditor discuss with management just before they begin field work?

Answer 1

Establish an understanding with the client as to the services to be performed and the overall audit strategy. The engagement letter, timing, client assistance, and the availability of documents.

Question 2

What will the Auditor discuss with management during field work?

Answer 2

• Identification and evaluation of control weaknesses

Question 3

What should a successor auditor do BEFORE accepting a new client engagement?

Answer 3

MAKE INQUIRIES WITH PREDECESSOR AUDITOR:
* Regarding matters that may bear on management integrity,
* Regarding disagreements the predecessor had with the client concerning auditing procedures and accounting principles.
* Reasons for the change in Auditors
* Communications regarding fraud, or illegal acts.
* Unusual, significant related party transactions and relationships.

Question 4

What can Successor Auditor ask Predecessor Auditor AFTER Engagement Acceptance?

Answer 4

• Make specific inquiries of the predecessor auditor regarding the degree of cooperation the predecessor received concerning the inquiry of the client’s lawyer.
• Make specific inquiries of the predecessor auditor regarding the predecessor’s evaluation of matters of continuing accounting significance.
• Consistency issues.

Question 5

What should auditor assess while considering client acceptance or continuation?

Answer 5

• The auditor should assess his or her ability to perform the audit prior to accepting a new engagement.
• Independence
• Mgmt integrity
• scope limitations

Question 6

During planning, what can happen before the audit plan strategy is implemented?

Answer 6

• Observe the physical inventory count

Question 7

What should the Accountant reference in a justified change in service from a Audit to a Review?

Answer 7

• The accountant’s review report should not include reference to the original engagement, to any auditing procedures that may have been performed, or to the scope limitation that resulted in the changed engagement.
• Do not disclaim an opinion.

Question 8

What should the Successor Auditor do if Predecessor Auditor refuses to share their work papers?

Answer 8

• The current auditor should review the risk assessment of the opening balances of the financial statements.
• If management refuses to permit the current auditor to discuss the prior-year engagement with the predecessor auditor, then the auditor should not accept the engagement.

Question 9

Who is considered a predecessor Auditor?

Answer 9

• An Auditor who was engaged to audit and did audit or did not audit the financial statements.

Question 10

What type of agreements will an auditor put in the engagement letter?

Answer 10

• Auditor’s responsibilities. One of the auditor’s responsibilities is to ensure that those charged with governance (e.g., the audit committee) are aware of any significant deficiencies in internal control that come to the auditor’s attention.
• Management’s responsibilities, which include establishing and maintaining effective internal control over financial reporting.
• Billing and other CPA Firm policies and rules

Question 11

What are the guidelines for accepting audit engagement AFTER year-end instead of BEFORE?

Answer 11

• The auditor should consider whether late appointment would pose limitations on the audit that may lead to a qualified opinion or a disclaimer of opinion and should discuss such concerns with the client.
• Difference in before year-end appointments (early) vs. after year-end (late) is that early appointments allows the auditor to plan a more efficient audit.
• The auditor is typically appointed before year-end to allow for
  such things as a year-end inventory observation or securities count