Topic 5 - Client Acceptance and Initial Audit Planning

Question 1

Client Acceptance and Continuance, which five things guide this process?

Answer 1

• auditors interests, resources and quality controls
• auditing standards
• code of ethics
• financial reporting requirements
• client characteristics

Question 2

which three questions must the auditor ask of themselves before accepting a client?

Answer 2

■ Does the auditor wish to be associated with the entity?
■ Can the auditor perform the audit competently?
■ Can the meet the independence and other
ethical requirements?

Question 3

which three questions must the auditor ask of client before accepting them?

Answer 3

■ Why does the entity want an audit?
■ If there is a change of auditor - why?
■ What is the applicable financial reporting
framework?

Question 4

name six sources that an auditor can use to gain information about a client? outside of the client themselves

Answer 4

■ Colleagues within the audit firm
■ Professional service providers
■ Databases
■ Media
■ Regulatory agencies
■ Predecessor auditor

Question 5

Why do auditors need to obtain ethical clearance from a previous auditor?

Answer 5

Need to consider if there are any reasons for

not accepting the engagement`

Question 6

What is needed when contacting prior auditor? 2

Answer 6

• client’s permission

- strictest confidence when receiving info

Question 7

Why is evaluating manager integrity important? 4

Answer 7

• they impact how the company is conducted
• influence internal controls
• if no integrity could lead to company insolvency
• impacts auditors

Question 8

What are the three Preconditions For an Audit?

Answer 8

• acceptable financial reporting framework is used
• Managers understand their responsibility to prepare financial reports and operate internal controls
• Management agrees to provide info and access to auditors.

Question 9

what are the two steps in Evaluating independence of an auditor?

Answer 9

■ Need to consider if there is any impediment to auditor independence in accepting an engagement.
■ Remove the impediment/ decline the engagement

Question 10

what are the three factors that show that the auditor is Competent to perform the audit?

Answer 10

capabilities, time and resources

Question 11

can resources be sourced externally?

Answer 11

yes - subject area/industry experts

Question 12

What is an engagement letter?

Answer 12

A legal contract between auditor and client

Question 13

what does an engagement letter include? 6

Answer 13

■ Objective of the financial report audit
■ Responsibilities of management
■ Scope of the audit
■ Form of any reports
■ Explanation of the extent to which an audit can be relied on to detect material misstatements
■ The auditor’s right to access information

Question 14

why do auditors consider the expected scope and conduct of the audit? 5

Answer 14

■ Ensure effective audit
■ Focus on areas of greatest risk
■ Ensure efficient audit
■ Resource allocation
■ Identify concerns at an early stage and discuss with management

Question 15

what are the four steps in the initial audit planning phase after accepting engagement?

Answer 15

• location/timing issues
• selecting staff
• evaluate need for outside specialists
• prepare working papers