Unit 3 Summary Pre-engagement activities PDF

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Unit 3 Summary Pre-engagement activities...

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Unit 3: Pre-engagement activities Scope of the audit Audit must be conducted in accordance with ISA, IRBA regulations and the terms of engagement letter Reasonable assurance •

The auditor gives a reasonable level of assurance for their audit opinion

•

The audit consists of inherent limitations due to testing, subjective tests and use of judgement as well as audit evidence being persuasive rather than conclusive

Responsibility for financials  Auditor must express opinion  Management must prepare as well as the financials present fairly in all material aspects Risk and materiality •

Auditors must reduce material risk to an acceptably low level and conduct audit procedures to gain audit evidence to determine risk

Audit and related services

Audit

Review

Agreed upon

Compilation

procedures

No assurance High but not

Moderate

No assurance

total assurance

assurance

or opinion

+ Assurance

- Assurance

or opinion

Factual

Identification of

findings

compiled

Audit Process Auditing Historical financials aims to create opinion on the financials using audit procedures to generate sufficient evidence to do so Steps of the audit process

Engagment

Overall Planning

Detailed Planning

Obtaining Audit evidence

Evaluating concluding and reporting

Elements of an Assurance Engagement 1. 3 Party Relationship •

A practitioner namely professional accountant

•

Responsible parties for relevant subject matter

•

Intended user

2. Subject Matter -

Information measured against criteria such as fin conditions and info as well as non-fin info and conditions like physical and performance conditions

3. Suitable Criteria  Info against which subject matter will be assessed such as fin stats assessed against assertions 4. Suitable and appropriate audit evidence  Auditor must obtain sufficient quantity and quality evidence from reliable sources to develop opinion accounting for risks and materiality  Representations must be requested from management to confirm all relevant info has been supplied and accurately

5. Written Assurance Report  Auditor should ensure that written opinion or report drafted QC policies and procedures for firms and engagement teams QC ensures:  A firm acts professionally always limiting legal and other damages while providing quality professional services Document all QC procedures and policies Elements of QC  Leadership responsibilities regarding quality  Ethical reqs  Acceptance and continuance of engagements  HR  Engagement performance  Monitoring Key Definitions Engagement Partner: Partner responsible for engagement and report Engagement Q Review: Process to create objective assessment of the engagement work and judgements drawn thereof. Engagement Q Reviewer: Party/ies not involved in the engagement with expertise to review work Engagement team: Staff and partners working on the engagement Monitoring: Ongoing process of evaluating and ensuring the firm complies with relevant codes of best practice as well as regulations QC at firm level  Leadership responsibilities regarding quality Policy:  Establish policies which encourage and develop internal firm culture that quality is important  Responsibility of CEO or managing board

 Those responsible must be adequately equipped Q means:  Work in line with standards and regulations  Reports issued are appropriate Procedures  Give management responsibilities to engagement so $ does not trump Q  Reward policies show commitment to Q  Sufficient resources to develop, document and implement QC  Those responsible must be adequately resourced and skilled

 Ethical reqs Policy  Implement policies to uphold 5 principles of CPC  Policies must allow firm to communicate independence to all and to identify threats to said independence Procedures  Communicate independence reqs to staff  Engagement partners must provide client info to assess client  Conflicts must be declared  Breaches of reqs must be reported  Annually staff confirmation in writing of compliance  Criteria must be developed to reduce familiarity threats  Engagement partners on listed firms must rotate 7 years

 Acceptance and continuance of engagements Policy  Engagement will continue if competent, sure of client integrity and able to meet ethical reqs Procedures

 Contact previous auditor  Do enquiries  Background searches  Document findings

 HR Policy  Staff must have sufficient skills and competencies to discharge duties  Must relate to recruitment, Performance eval, skills and competence, career dev, promotion, comp, personnel need  Performance eval gives recognition to development and growth  Assigning correct people to audit based on skills Procedures  Ensure recruitment identifies correct and ethical individuals  Ensure skills are developed via education, training, workshops, etc  Personnel must be aware of eval criteria  Systems must exist to monitor work load, abilities and availability of staff for placement on engagements

 Engagement performance Direction Supervision Review  Firm must provide manuals, tools, industry standard material, etc. enable work  Should track progress of engagement, review competency and findings and matters requiring experts  Experienced engagement partners must review work Consultation  Ensure consultation occurs at appropriate intervals, consultation is adequately resourced, consults documented, conclusions implemented Differences of opinion  Policies to bring resolutions to differences

Engagement QC review Policy  Review of fin stats, other significant elements of the engagement Procedures  Criteria for when review must be in place  Nature timing and extent of q review defined  Competence reviewer  Process will include discussing with engagement partner, review subject matter, review documentation, review of conclusions

Engagement Documentation  Engagement file assembled timeously (max 60 days after audit report)  Kept safe and confidential  Documentation kept 5 years minimum

 Monitoring  Policies should exist to ensure compliance with standards, laws and regulations  Procedures must ensure that qc controls are working effectively and efficiently All principles are applicable at audit level but are enforced by the engagement partner. Simply apply to partner Need for Engagement Activities Clients risks  Legal Liability  Rep Damage Quality audit i.e. being competent enough to do work Regulatory and Statutory reqs and compliance Responsibility for acceptance and continuance of engagements

Obtaining Engagement Acceptance Evidence Method and timing of info  Obtain before acceptance for new clients and before next audit for existing clients  Obtain via RAPS through management enquiries, observation and inspection, analytical reviews New Clients  Contact previous auditor  Enquiry of personnel  Enquiry of 3rd parties  Other auditors  Media  Background checks Existing clients  Info from current or previous audit  Consider significant changes in management or audit in general Engagement Activity Framework 1. Client investigation  Consider auditor independence especially engagement team  Client integrity  Changes in the entity for existing clients  Previous auditor info  Fin responsibility of client  Legal procedures for engagement 2. Determine the skills and competencies required for the engagement  Personnel knowledge and skills  Experience of personnel  Sufficient capable personnel  Experts availability

 Can deadline be met 3. Establish terms of engagement  All new engagements or changes thereof confirmed in engagement letter  Establishes contractual relationship  File in WPs Engagement Letters Purpose  Avoids misunderstandings between auditor and client  Sets out auditor responsibilities and managements  Sets scope and objective of audit and format of reports Issue  Issue for each new audit or audit with changes  For recurring ones, new one need not be issues unless changes occurred Accepting change to engagement  Shall not accept unjustified changes  When requested to lower assurance level: Consider reasons and issue new engagement letter if necessary, withdraw if in disagreement...