w Flashcards
Before accepting a new client, the accounting firm must determine that it:
- Has the capabilities to perform the engagement
Complies with legal and relevant ethical requirements
Has considered the integrity of the client
Has the capabilities to perform the engagement, meaning: Determine if
*Has the necessary technical skills and knowledge of
relevant industry or subject matters
* Has personnel that have experience with relevant
regulatory or reporting requirements
* Has sufficient personnel with necessary competence and
capabilities
* Has specialists, if needed
* Is able to complete the engagement within the reporting deadline
Complies with legal and relevant ethical requirements
- Is independent of the entity
- Can accept the entity without violating any applicable regulatory agency requirements or the Rules of professional Conduct
Has considered the integrity of the client, Determine the following
The identity and business reputation of the client’s principal owners, key management, and those charged with governance
* The nature of the client’s operations, including its business practices
* Information concerning the attitude of the client’s principal owners, key management, and those charged with governance toward such matters as internal control or aggressive interpretation of accounting standards
* Indications of an inappropriate limitation in the scope of the work
* Indications that the client might be involved in money laundering or other criminal activities
* The reasons for the proposed appointment of the firm and nonreappointment of the previous firm
How do you evaluate the continuing client retention
Evaluate client retention periodically when:
Near audit completion or after significant event, also event could conflicts like over fees or accounting/auditing issues
Engagement partner and other supervisory
members of the team
*Inform engagement team members of their
responsibilities
* Direct engagement team members to identify
and communicate audit issues
* Review the work of the engagement team
members
Supervision of the Audit
The auditor should establish an understanding with
the entity about the terms of the engagement. In
doing so, three topics should be discussed
- The engagement letter
- Using the work of the internal audit function
- The role of the audit committee
The engagement letter
The engagement letter documents the terms of the
engagement, which should include the objectives of the
engagement, management’s responsibilities, the auditor’s
responsibilities, and the limitations of the engagements.
Establishing an Understanding
with the Entity, what hapens if there is a breach of contract?
Steps to an audit plan and strategy
Assess business risks:
Establish materiality:
Consider group audits:
Assess the need for specialists:
Consider violations of laws and regulations
Identify related parties
Consider additional value added services
Document the overall audit strategy and audit plan, prepare audit programs
Types of audit test
Risk assessment procedures, tests of controls, substantive procedures
Types of tests of controls
Inquiries of appropriate management, supervisory, and staff personnel
Inspection of documents, reports, and electronic files
Observation of the application of specific controls
Walkthroughs, tracing transaction from origination to its inclusion in FS through a combination of audit procedures, including inquiry, observation, and inspection
Reperformance of the application fo the control by the auditor
2 categories of substantive procedures
test of details (test for errors or fraud in transaction
substantive analytical procedures (trends and ratio)
