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Auditing and Good Governance > Week 7 > Flashcards

Week 7 Flashcards

Audit Engagements

1
Q

What is PSA 210?

A

A: PSA 210 outlines the terms of audit engagements between the auditor and client.

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2
Q

When should an engagement letter ideally be sent?

A

A: Preferably before the commencement of the audit engagement.

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3
Q

What does an engagement letter help avoid?

A

A: Misunderstandings regarding the terms of the audit engagement.

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4
Q

What is one of the main purposes of the engagement letter?

A

A: To document the auditor’s acceptance of the appointment.

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5
Q

Name one of the principal contents of an engagement letter.

A

A: The objective of the audit of financial statements.

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6
Q

Why is there always a risk of undetected material misstatements in an audit?

A

A: Due to the test nature and inherent limitations of an audit and accounting systems.

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6
Q

Who is responsible for preparing the financial statements?

A

A: Management is responsible for the financial statements.

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7
Q

What should the client provide for the auditor to complete the audit?

A

A: Unrestricted access to records, documentation, and other requested information.

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8
Q

What should the auditor request from management during the audit?

A

A: Written confirmation concerning representations made.

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9
Q

What should the engagement letter reference in terms of audit scope?

A

A: Applicable legislation, regulations, or pronouncements of professional bodies.

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10
Q

What could be included in the engagement letter regarding fees?

A

A: The basis on which fees are computed and any billing arrangements.

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11
Q

What is an example of an additional arrangement that may be included in an engagement letter?

A

A: Arrangements regarding the involvement of other auditors and experts.

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11
Q

Under what circumstances might an auditor issue a separate engagement letter to a subsidiary?

A

A: If a separate audit report is required for the component.

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12
Q

What should the auditor do if there are changes in the terms of the engagement?

A

A: Revise the engagement letter to reflect the new terms.

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13
Q

What should the auditor do in the case of a recurring audit?

A

A: Consider whether the terms of the engagement need to be revised or reminded.

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14
Q

When is it appropriate for the auditor to send a new engagement letter for a recurring audit?

A

A: When there is a recent change in senior management or ownership.

15
Q

What might indicate that a client misunderstands the objective and scope of the audit?

A

A: Requests for changes in the engagement or recurring audit terms.

16
Q

What is an example of a reasonable basis for requesting a change in the engagement?

A

A: A change in circumstances affecting the need for the service.

17
Q

When would a request for a change in engagement not be considered reasonable?

A

A: If it appears the request relates to incorrect or incomplete information.

18
Q

What should the auditor do if they agree to a change in the engagement?

A

A: Agree on the new terms with the client and issue a revised report.

19
Q

What should a revised audit report not include?

A

A: References to the original engagement or procedures performed under it.

20
Q

What should the auditor do if they are unable to agree on a change in engagement?

A

A: Withdraw from the engagement.

21
Q

What might the auditor need to report if they withdraw from an engagement?

A

A: The circumstances of withdrawal to other parties, such as the board of directors.

22
Q

What should be done in the case of a change in ownership of a client?

A

A: Consider sending a new engagement letter with updated terms.

23
Q

Why might the auditor involve internal auditors during the audit?

A

A: To assist in specific aspects of the audit.

24
Q

What does the engagement letter confirm regarding audit reports?

A

A: The form and content of any reports or other communications of results.

25
Q

What could cause a restriction on the scope of an engagement?

A

A: Restrictions imposed by management or other circumstances.

26
Q

Why is it important to clarify the auditor’s responsibilities in the engagement letter?

A

A: To ensure both parties understand the extent of the auditor’s duties.

27
Q

What happens when there is a significant change in the size or nature of a client’s business?

A

A: A new engagement letter may be required to reflect the changes.

28
Q

What role do legal requirements play in determining the need for a separate engagement letter for a subsidiary?

A

A: Legal requirements may mandate a separate engagement letter for the component.

Auditing and Good Governance (2 decks)

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