This document is posted to help you gain knowledge. Please leave a comment to let me know what you think about it! Share it to your friends and learn new things together.
Examination of the proposed client to determine if there is any reason to reject the engagement (acceptance OF the client) and convincing the client to hire the auditor (acceptance BY the client)
Decide on acquiring a new client or continuation of the relationship with and existing client
Evaluate the clients background and reasons for the audit.
Determine whether the auditor is able to meet the ethical requirements regarding the client
Determine need for other professionals. Communicate with predecessor auditor. Prepare client proposal. Select staff to perform the audit. Obtain an engagement letter.
to evaluate the engagement risks associated with accepting the specific engagement and
to help the auditor in determining whether all professional and ethical requirements (including independence, competence, etc.) regarding this client can be met.
Evaluate governance, internal controls and possible risks with client's management and staff including
Changes in management, organizational structure, and activities of the client.
Current government regulations Current business developments Current or impending financial difficulties or accounting
problems. Susceptibility of the entity’s financial statements to material
misstatement due to error or fraud.(ISA 315) Existence of related parties. (ISA 550- Final Draft 2006) New or closed premises and plant facilities. Recent or impending changes in technology, types of
products or services and production or distribution methods. . Changes in the accounting system and the system of internal
An outside specialist such as IT, environmental or tax specialist, may be needed to properly audit the client.
ISA 600 (ED 2005) applies when an auditor, acting as a group auditor, decides to use the work of a related auditor or unrelated auditor in the audit of group financial statements.
The group auditor is solely responsible for expressing an audit opinion on the group financial statements. (Some countries (US) allow divided responsibility, other’s don’t.(UK, Australia, Japan))
The Group Auditor should document the following in the audit work papers:
The other auditor’s professional qualifications, independence, professional competence and resources
Significant risks of material misstatement that may arise from audit components and the group auditor’s response to such risks.The basis for the group auditor’s conclusion to accept or
continue the engagementThe results of the risk assessment performed at the group
level, and a description of the audit procedures to be performed,
The group auditor’s communications with other auditors about the group auditor’s requirements.
The group auditor’s conclusion on uncorrected misstatements, and the effect of the other auditors’ reports or memorandums of work performed on the groupaudit opinion.
ISA 620 defines an expert as a person or firm possessing special skill, knowledge and experience in a particular field other than accounting and auditing.
Have client write instructions to the expert scope of the expert’s work, coverage of expert’s report intended use of the expert’s work, access of the expert to files and records
Prior Auditor- First Time EngagementsIFAC Code of Ethics requires the new auditor to communicate directly with the previous auditor.The proposed accountant should request permission from the client to communicate with existing accountant.When the prior accountant receives the communication, he should reply advising of any reasons why the proposed accountant should not accept the appointment.First time engagements require evidence that opening balances are not misstated, prior balances are correctly brought forward, and proper accounting applied. (ISA 510)
New Client Audit ProposalAn executive summaryClient’s business and audit expectationsStrengths of the audit firm Audit team Audit approachClient’s internal auditorsTransition needsOther services of the audit firmAfter service monitoringFee details
The objective of the auditManagement responsibility for the financial
informationAn applicable financial reporting frameworkThe scope of the auditThe form of any reports or other resultsThe fact that some material misstatements may
remain undiscoveredUnrestricted access to all records,
documentation, and other information requested in connection with the audit