PRE - ENGAGEMENT
Pre - Engagement Considerations
STEP 1: Investigate Client/ management
Considerations in terms of ISQC1:
*Business reputation of the client’s principal owners,
key management and those charged with governance.
*The nature of the client’s operations.
*Client’s attitude towards aggressive interpretation
of accounting policies and the internal control environment.
*Client’s aggressive concerns to maintain low audit fees.
* Inappropriate limitation on the scope of work( tight audit deadlines, low audit fees etc.)
*The client’s involvement in money laundering or criminal activities.
*Reasons for proposed appointment of the firm and non-reappointment of the previous firm.
*The identity and business reputation of related parties.
* Preparation of AFS in accordance with IFRS?
* Unethical cost reducing measure ?
STEP 2 : Ability to pay audit fees (client)
* Good reputation ?
* Profitable ?
STEP 3: Determine the Auditor's skills,
competencies & resources
* Tight deadline ?
*Prior knowledge of the industry ?
* no. of audit trainees ?
*Location of the firm + client ?
STEP 4: The Auditor previous
* Permission ?
* Enquiries ?
Step 5: Consider ethical & statutory req.
* Threats ?
* Safeguards ?
STEP6: Establish the terms of engagement
* Discuss Responsibilities
*Client willingness to sign ?
STEP7 : Conclusion
Engagement Letter contents
*The objective and scope of the audit of the financial statements.
* The responsibilities of the auditor and that of management
* The financial reporting framework used when preparing the financial statements.
*Reference to the expected form and content of reports that the auditor will issue and a
statement indicating that this might deviate from the expectation in certain cases.
* Reference to specific laws, regulations, ISAs and ethical or other pronouncements
of professional bodies that applies to the audit or auditor.
* Reference to the fact the audit has inherent limitations (reasonable assurance)
* Management should provide the auditor with all information, writeen representations and persons.
*Management should provide the auditor with info of any subsequent events between engagement
and the date the financial statements are issued.
* The basis on which the audit fees are computed and the billing arrangements.
* Management acknowledgement of the audit engagement letter and agree to the terms by signing it.
* Arrangements involving third-party auditors, experts, internal auditors, the previous auditors etc.
* The auditor’s responsibilities identifying or suspecting non-compliance with laws and regulations.
ASSERTIONS
Account Balances Classes of Transactions
Rights Completeness Accuracy, valuation Completeness Occurance
Existence Presentation & Allocation cut-off Accuracy Classification
Pre - Engagement Considerations
STEP 1: Investigate Client/ management
Considerations in terms of ISQC1:
*Business reputation of the client’s principal owners,
key management and those charged with governance.
*The nature of the client’s operations.
*Client’s attitude towards aggressive interpretation
of accounting policies and the internal control environment.
*Client’s aggressive concerns to maintain low audit fees.
* Inappropriate limitation on the scope of work( tight audit deadlines, low audit fees etc.)
*The client’s involvement in money laundering or criminal activities.
*Reasons for proposed appointment of the firm and non-reappointment of the previous firm.
*The identity and business reputation of related parties.
* Preparation of AFS in accordance with IFRS?
* Unethical cost reducing measure ?
STEP 2 : Ability to pay audit fees (client)
* Good reputation ?
* Profitable ?
STEP 3: Determine the Auditor's skills,
competencies & resources
* Tight deadline ?
*Prior knowledge of the industry ?
* no. of audit trainees ?
*Location of the firm + client ?
STEP 4: The Auditor previous
* Permission ?
* Enquiries ?
Step 5: Consider ethical & statutory req.
* Threats ?
* Safeguards ?
STEP6: Establish the terms of engagement
* Discuss Responsibilities
*Client willingness to sign ?
STEP7 : Conclusion
Engagement Letter contents
*The objective and scope of the audit of the financial statements.
* The responsibilities of the auditor and that of management
* The financial reporting framework used when preparing the financial statements.
*Reference to the expected form and content of reports that the auditor will issue and a
statement indicating that this might deviate from the expectation in certain cases.
* Reference to specific laws, regulations, ISAs and ethical or other pronouncements
of professional bodies that applies to the audit or auditor.
* Reference to the fact the audit has inherent limitations (reasonable assurance)
* Management should provide the auditor with all information, writeen representations and persons.
*Management should provide the auditor with info of any subsequent events between engagement
and the date the financial statements are issued.
* The basis on which the audit fees are computed and the billing arrangements.
* Management acknowledgement of the audit engagement letter and agree to the terms by signing it.
* Arrangements involving third-party auditors, experts, internal auditors, the previous auditors etc.
* The auditor’s responsibilities identifying or suspecting non-compliance with laws and regulations.
ASSERTIONS
Account Balances Classes of Transactions
Rights Completeness Accuracy, valuation Completeness Occurance
Existence Presentation & Allocation cut-off Accuracy Classification
