Module 14 Audit Process: Engagement and Client Management Flashcards
Throughout the audit process, what are the two elements that are ongoing from start to finish?
Risk assessment
Engagement and client management
What is ISQC (UK) 1 and what are the requirements?
This is quality control for firms that perform audits and reviews of financial statements, and other assurance and related service engagements.
ISQC UK 1 requires audit firms to ensure that they have adequate recruitment, performance evaluation and training procedures to make certain that staff are committed to ethical principles and have the capabilities and competence necessary to perform engagements in accordance with the applicable laws and regulations.
This helps audit firms avoid litigation and to control risks.
What is ISA (UK) 220 and what is the requirement?
ISA (UK) 220 Quality control for an audit of financial statements
ISA (UK) 220 requires audit firms to assign an engagement partner for each audit engagement and clarifies that the engagement partner has responsiblity for the direction, supervision and performance of the audit engagement in compliance with professional standards, regulatory and legal requirements.
What is the importance of audit workpapers?
Auditors must be able to provide evidence demonstrating that the audit has been completed. Documentation of all audit work and all material matters of judgement during the audit is vital.
What is the purpose of reviewing audit workpapers?
To ensure that:
Sufficient, appropriate evidence has been gathered to support the audit report
Judgements and conclusions drawn are appropriate
The requirements of the auditing standards and company law have been fulfilled
What must audit workpapers include?
It must include:
Who performed the audit work and the date it was completed
Who reviewed the audit work and the date and extent of such review (usually audit manager/audit senior)
What is ISA (UK) 230 and what are the requirements?
ISA (UK) 230 Audit Documentation
This sets out the standards required for the content of the auditor’s working papers. Essentially if an unconnected auditor was to read the audit file, they should be able to understand the procedures and judgements underlying the opinion given in the audit report.
What are the three quality control standards that provide guidance to auditors?
ISQC (UK) 1 - Quality control for firms that perform audits and reviews of financial statements, and other assurance and related service engagements.
ISA (UK) 220 - Quality control for an audit of financial statements
ISA (UK) 230 - Audit Documentation
What is ISA (UK) 260?
ISA (UK) 260 - Communication with those charged with Governance
ISA (UK) 260 requires auditors to communicate to those charged with governance regarding:
The auditor’s responsiblities in relation to the financial statement audit
The planned scope and timing of the audit
Significant findings from the audit
Auditor independence
For ISA (UK) 260, what are the significant findings that should be communicated to those charged with governance?
Views on the qualitative aspects of the entity’s accounting practices and financial reporting (ie, accounting policies or estimates)
Significant difficulties (if any) encountered during the audit
Unless all those charged with governance are involved in day to day management, significant audit matters discussed with management and details of written representations requested by the auditor
Circumstances that affect the form and content of the auditors report (such as the need to modify the audit opinion)
Any other significant matters that are judged relevant by the auditor
What does the engagement letter do?
ISA (UK) 210 - Agreeing the terms of audit engagements provides the auditor with guidance regarding the content and the timing of the engagement letter.
The engagement letter sets out the agreed terms between audit and client and acts as a contract serving to protect both parties and reduce the risk of misunderstandings in relation to the engagement.
ISA (UK) 210 highlights what must be included in the engagement letter, what are these?
The objective and scope of the audit of the financial statements
The responsiblities of the auditor
The responsiblities of management
Indentificaiton of the applicable financial reporting framework for the preparation of the financial statements
Reference to the expected form and content of any reports to be issued by the auditor including a statement that there may be circumstances in which a report may differ from the expected form and content
What does ISA (UK) 210 state that auditor must obtain from management?
It states that it must obtain the agreement of management that it acknowledges and understands its responsiblity for:
Preparing accurate financial statements in accordance with an acceptable financial reporting framework
Ensuring proper internal controls over the preparation of financial statements are in place
Providing the auditor with access to all records and providing any explanations necessary
In what circumstances does ISA (UK) 210 suggest that a new letter of engagement to be issued?
there is any indication that the client has misunderstood the objective or scope of
the audit;
• there are any revised or special terms of the audit engagement;
• there have been significant changes of senior management;
• there have been significant changes in ownership of the entity;
• there have been significant changes in legal or regulatory requirements;
• there has been a change in the financial reporting framework adopted in the
preparation of the financial statements;
• there has been a significant change in the nature of the client’s business; or
• there has been a change in other reporting requirements.
What is involved in the planning stage of an audit?
This is when the audit team develop their understanding of the entity so that they can work out where to focus their attention. They will focus on the areas most likely to contain incorrect information that would impact the users of the financial statements