An Overview of Auditing Chapter 6
Preliminary Engagement Activity
1. Pre-Conditions for an Audit
1.1 In terms of ISA210 – Agreeing the terms of audit engagement,
the objective of an audit is to accept pr continue the audit
engagement only when:
- The pre-conditions for an Audit are present.
- Confirm that there is a common understanding between the
Auditor, Management and those charged with governance.
NB I!!! If these two requirements have not been met or
established, the Audit need to go no further in considering the
Engagement.
1.2 The pre-conditions for an audit are that:
- The Financial reporting framework to be applied in preparing
the Financial Statement to be audited is Acceptable.
- The Audit obtains the agreement of management, that
management acknowledge and understand its responsibility:
For preparation and presentation of the financial statement in
according IFRS or other requirements, establish the internal
controls ensuring that the financial statement are free from
material misstatement, and to provide the auditor with access
to all information required in preparing the financial
statement.
2. Prospective clients and continuance with existing client:
The Audit Firm itself is a business; there the auditor will not want to
enter a relationship if negative consequences are likely to occur.
There are many reasons an auditor might not wish to enter a
relationship with a prospective client:
- The client management might lack integrity or be unethical.
- Audit firm may not wish to be associated with the client
operates eg Tobacco, pollute the environment or other
reasons.
- The client has a poor relationship with the auditors.
- The client can’t pay audit fee.
- Audit firm may not have competence and resources to serve
the client properly.
Preliminary Engagement Activity
1. Pre-Conditions for an Audit
1.1 In terms of ISA210 – Agreeing the terms of audit engagement,
the objective of an audit is to accept pr continue the audit
engagement only when:
- The pre-conditions for an Audit are present.
- Confirm that there is a common understanding between the
Auditor, Management and those charged with governance.
NB I!!! If these two requirements have not been met or
established, the Audit need to go no further in considering the
Engagement.
1.2 The pre-conditions for an audit are that:
- The Financial reporting framework to be applied in preparing
the Financial Statement to be audited is Acceptable.
- The Audit obtains the agreement of management, that
management acknowledge and understand its responsibility:
For preparation and presentation of the financial statement in
according IFRS or other requirements, establish the internal
controls ensuring that the financial statement are free from
material misstatement, and to provide the auditor with access
to all information required in preparing the financial
statement.
2. Prospective clients and continuance with existing client:
The Audit Firm itself is a business; there the auditor will not want to
enter a relationship if negative consequences are likely to occur.
There are many reasons an auditor might not wish to enter a
relationship with a prospective client:
- The client management might lack integrity or be unethical.
- Audit firm may not wish to be associated with the client
operates eg Tobacco, pollute the environment or other
reasons.
- The client has a poor relationship with the auditors.
- The client can’t pay audit fee.
- Audit firm may not have competence and resources to serve
the client properly.
