AUE3761
, Accepting a new client: Self assessment TUT 102 - Q1
Four main aspects to be evaluated:
Integrity: Consider the integrity of the client’s management (Auditing Notes, chapter 6; ISA 220 para A8; ISQC 1 para A19).
Competence: Is the audit firm competent to perform the engagement? (Auditing Notes, chapter 6; ISA 220 para A8; ISQC 1 para A18).
Ethics: Do any ethical threats exist between the audit firm and the client? (Auditing Notes, chapter 6; ISA 220 para A8).
Significant matters: Did any such matters arise during the current or previous engagement, the implications of which will affect the
continuance of the relationship? (ISA 220 para A8).
Threats Safeguards
1. 1.
2. 2.
3. 3.
4. 4.
Threats to compliance with fundamental principles:
- Self interest threat
- Self review threat
- Advocacy threat
- Familiarity threat
- Intimidation threat
Other threats:
- Resources to finalise the audit
Safeguards to possible threats: Note - AUE2601 Topic 02
, What is the weaknesses in the engagement letter? (This is what needs to be on an engagement letter) -
Self assessment TUT 102 - Q5.4
- The letter need to be dated
- The letter is needs to be addressed to the appropriate representative of management, that is, the board of directors or the audit
committee.
- It needs to indicate the year to be audited.
- If it is the first audit, imposing a deadline by promising sign-off of the annual financial statements on a near date is inappropriate.
- Auditors do not “certify”; they give an opinion on fair presentation
- It needs to be mentioned that an audit includes evaluating the appropriateness of accounting policies, the reasonableness of
accounting estimates and overall presentation of the financial statements.
- The letter needs to alert the client, because of the inherent limitations of an audit, together with the inherent limitations of internal
control, the unavoidable risk still exists that some material misstatements may not be detected, even though the audit is properly
- There is needs to be an indication that written confirmation of representations of management will be requested.
- Reference need to be made to the use of an expert should this be appropriate.
- Indication needs to be given that management should inform the auditor of any subsequent events.
- Indication needs to be given that management should provide the auditors with access to all information and persons necessary to
perform the audit.
- Basing the fees on a similar audit of a previous year, particularly in the case of a first audit, is not an appropriate method of fee
charging. Fees should be negotiated with the audit committee based on time, skill and experience.
- The explanation of why the letter must be signed and returned needs to refer to the acknowledgement of the terms of the
engagement.
- The letter should be signed by the designated auditor and not the senior audit manager
- The designated auditor needs to be identified.
- Management is responsible for compiling the financial statements and it should be mentioned as such in the audit engagement letter.
- The letter should indicate that the audit will be performed according to International Standards on Auditing and not in accordance
with generally accepted accounting practices
- If there is a mention of an automated system remember CAATS - Computer-assisted audit techniques.
, Accepting a new client: Self assessment TUT 102 - Q1
Four main aspects to be evaluated:
Integrity: Consider the integrity of the client’s management (Auditing Notes, chapter 6; ISA 220 para A8; ISQC 1 para A19).
Competence: Is the audit firm competent to perform the engagement? (Auditing Notes, chapter 6; ISA 220 para A8; ISQC 1 para A18).
Ethics: Do any ethical threats exist between the audit firm and the client? (Auditing Notes, chapter 6; ISA 220 para A8).
Significant matters: Did any such matters arise during the current or previous engagement, the implications of which will affect the
continuance of the relationship? (ISA 220 para A8).
Threats Safeguards
1. 1.
2. 2.
3. 3.
4. 4.
Threats to compliance with fundamental principles:
- Self interest threat
- Self review threat
- Advocacy threat
- Familiarity threat
- Intimidation threat
Other threats:
- Resources to finalise the audit
Safeguards to possible threats: Note - AUE2601 Topic 02
, What is the weaknesses in the engagement letter? (This is what needs to be on an engagement letter) -
Self assessment TUT 102 - Q5.4
- The letter need to be dated
- The letter is needs to be addressed to the appropriate representative of management, that is, the board of directors or the audit
committee.
- It needs to indicate the year to be audited.
- If it is the first audit, imposing a deadline by promising sign-off of the annual financial statements on a near date is inappropriate.
- Auditors do not “certify”; they give an opinion on fair presentation
- It needs to be mentioned that an audit includes evaluating the appropriateness of accounting policies, the reasonableness of
accounting estimates and overall presentation of the financial statements.
- The letter needs to alert the client, because of the inherent limitations of an audit, together with the inherent limitations of internal
control, the unavoidable risk still exists that some material misstatements may not be detected, even though the audit is properly
- There is needs to be an indication that written confirmation of representations of management will be requested.
- Reference need to be made to the use of an expert should this be appropriate.
- Indication needs to be given that management should inform the auditor of any subsequent events.
- Indication needs to be given that management should provide the auditors with access to all information and persons necessary to
perform the audit.
- Basing the fees on a similar audit of a previous year, particularly in the case of a first audit, is not an appropriate method of fee
charging. Fees should be negotiated with the audit committee based on time, skill and experience.
- The explanation of why the letter must be signed and returned needs to refer to the acknowledgement of the terms of the
engagement.
- The letter should be signed by the designated auditor and not the senior audit manager
- The designated auditor needs to be identified.
- Management is responsible for compiling the financial statements and it should be mentioned as such in the audit engagement letter.
- The letter should indicate that the audit will be performed according to International Standards on Auditing and not in accordance
with generally accepted accounting practices
- If there is a mention of an automated system remember CAATS - Computer-assisted audit techniques.
