Week 7 Flashcards
Audit Engagements
What is PSA 210?
A: PSA 210 outlines the terms of audit engagements between the auditor and client.
When should an engagement letter ideally be sent?
A: Preferably before the commencement of the audit engagement.
What does an engagement letter help avoid?
A: Misunderstandings regarding the terms of the audit engagement.
What is one of the main purposes of the engagement letter?
A: To document the auditor’s acceptance of the appointment.
Name one of the principal contents of an engagement letter.
A: The objective of the audit of financial statements.
Why is there always a risk of undetected material misstatements in an audit?
A: Due to the test nature and inherent limitations of an audit and accounting systems.
Who is responsible for preparing the financial statements?
A: Management is responsible for the financial statements.
What should the client provide for the auditor to complete the audit?
A: Unrestricted access to records, documentation, and other requested information.
What should the auditor request from management during the audit?
A: Written confirmation concerning representations made.
What should the engagement letter reference in terms of audit scope?
A: Applicable legislation, regulations, or pronouncements of professional bodies.
What could be included in the engagement letter regarding fees?
A: The basis on which fees are computed and any billing arrangements.
What is an example of an additional arrangement that may be included in an engagement letter?
A: Arrangements regarding the involvement of other auditors and experts.
Under what circumstances might an auditor issue a separate engagement letter to a subsidiary?
A: If a separate audit report is required for the component.
What should the auditor do if there are changes in the terms of the engagement?
A: Revise the engagement letter to reflect the new terms.
What should the auditor do in the case of a recurring audit?
A: Consider whether the terms of the engagement need to be revised or reminded.
When is it appropriate for the auditor to send a new engagement letter for a recurring audit?
A: When there is a recent change in senior management or ownership.
What might indicate that a client misunderstands the objective and scope of the audit?
A: Requests for changes in the engagement or recurring audit terms.
What is an example of a reasonable basis for requesting a change in the engagement?
A: A change in circumstances affecting the need for the service.
When would a request for a change in engagement not be considered reasonable?
A: If it appears the request relates to incorrect or incomplete information.
What should the auditor do if they agree to a change in the engagement?
A: Agree on the new terms with the client and issue a revised report.
What should a revised audit report not include?
A: References to the original engagement or procedures performed under it.
What should the auditor do if they are unable to agree on a change in engagement?
A: Withdraw from the engagement.
What might the auditor need to report if they withdraw from an engagement?
A: The circumstances of withdrawal to other parties, such as the board of directors.
What should be done in the case of a change in ownership of a client?
A: Consider sending a new engagement letter with updated terms.
Why might the auditor involve internal auditors during the audit?
A: To assist in specific aspects of the audit.
What does the engagement letter confirm regarding audit reports?
A: The form and content of any reports or other communications of results.
What could cause a restriction on the scope of an engagement?
A: Restrictions imposed by management or other circumstances.
Why is it important to clarify the auditor’s responsibilities in the engagement letter?
A: To ensure both parties understand the extent of the auditor’s duties.
What happens when there is a significant change in the size or nature of a client’s business?
A: A new engagement letter may be required to reflect the changes.
What role do legal requirements play in determining the need for a separate engagement letter for a subsidiary?
A: Legal requirements may mandate a separate engagement letter for the component.
