Mod 12: Acceptance and Continuance

Question 1

Use BAILMAN when evaluating acceptance risks

Answer 1

Basis for performance
Auditor previous
ID procedures
Legal and financial stability

Management integrity
Ability to audit - practically and ethically
Nature and user

Question 2

The 7 steps to the audit process

Answer 2

1. Acceptance/continuance
2. Planning
3. Systems and controls analysis
4. Substantive testing
5. Completion

Ongoing elements

6. Risk assessment
7. Engagement and client management

Question 3

The audit proposal - winning an audit engagement

Answer 3

The audit proposal

• request to submit an audit proposal can come directly from the client or an advertisement
• Audit firm need to UNDERSTAND client/services and consider budget/resources in preparing proposal

Question 4

What elements should an audit proposal contain?

Answer 4

• audit fee estimate
• details on audit team
• initial assessment of key risk areas
• deliverables
• meeting dates
• timetable

Question 5

Acceptance risks associated with the client: What are the two types of acceptance risks?

Answer 5

COMMERCIAL RISKS
- financial and reputational risks

PROFESSIONAL RISKS
- non-compliance with standards and regulations

Question 6

Continuance procedures

Answer 6

• Risk assessment procedures undertaken annually
• update the firm’s evaluation of the client’s risk profile (review of PYs, press coverage, enquiry)
• annual independence confirmation from all audit firm staff
• document decision on whether to continue with the client

Question 7

What is the timing of continuance decision

Answer 7

Re-appointment at client AGM

If private company => at completion stage of the audit

Question 8

Safeguards

Answer 8

Eliminate the risk/reduce it to an acceptably low level

If unable decline the engagement

Question 9

examples of safeguards

Answer 9

recruiting extra staff, ethical walls, using an auditor’s expert, separate engagement teams, second partner review

Question 10

Engagement letters

Answer 10

• terms of engagement agreed and documented in the engagement letter in accordance with ISA (UK) 200

Must include:

• objective
• scope
• responsibilities of the auditor and mgmt
• applicable framework
• form of report

May include:
- mgmt representation expectations, scope, caveats/disclaimers, money laundering paragraph

Question 11

Continuing engagements engagement letter

Answer 11

Does not need to be reissued for continuing engagements unless sig changes in circumstances or prior misunderstandings

Question 12

Additional considerations for listed clients

Answer 12

• Threats to independence from SHing,
• increased legal/reputational exposure,
• increased regulatory requirements
• fee level restrictions
• additional workloads and fees
• increased competency requirements

Question 13

Additional considerations for US listed clients only

Answer 13

• Registered with PCAOB
• oversight
• monitoring
• NAS provision (SOX)
• s404 competency requirements