A2 - Engagement Quality & Acceptance, Planning, and Internal Control

Question 1

Would board meeting minutes be included in the permanent audit file (for long term use) or the current file?

Answer 1

Board meeting minutes would be included in the permanent file.

Question 2

Is an auditor obligated to provide a client’s audit documentation to the auditor’s attorney even WITHOUT the client’s permission if the client sues the auditor?

Answer 2

Yes. In this circumstance, the auditor can provide the third party (auditor’s attorney) the audit document even without the client’s permission.

Question 3

Is the number of years’ experience of a predecessor auditor relevant to the successor auditor in planning an engagement?

Answer 3

No.

Question 4

Is information from a predecessor auditor regarding recent trends in an industry relevant when the successor auditor is planning an engagement.

Answer 4

Yes. It should be considered by the successor auditor after accepting the engagement as part of audit planning.

Question 5

In regard to COSO, which internal control component is appropriate when incorporating new things into the business (such as new accounting principles, new personnel, new technology, corporate restructuring, etc.)?

Answer 5

Risk assessment is the appropriate internal control component when assessing the incorporation of anything new.

Question 6

When fraud is discovered, is it necessary for the auditor to communicate the fraud to the senior partner at the CPA firm?

Answer 6

No. When fraud is discovered, it should be reported to:

1) An appropriate level of management at least one level above those involved (if immaterial)
2) Senior management and those charged with governance if the fraud results in a material misstatement and/or if the fraud is a result of a significant deficiency in control.

Note: The auditor should report directly to those charged with governance (bypassing senior management) if the fraud involves senior management.

Question 7

When an auditor uses the work of a specialist who has a relationship with the client, what are some key things to remember?

Answer 7

The auditor must
1. Assess the risk of objectivity
2. Perform additional procedures if needed (to verify reasonableness & reliability). This may include testing assumptions, methods, or findings or even engaging another specialist for corroboration.
3. The Auditor is NOT required to disclose the relationship in the auditor’s report
4. Use of the specialist’s work is permissible.

Question 8

What can an internal auditor assist with in an external auditor’s work?

Answer 8

The internal auditor may aid in
- providing an understanding of internal control
- assessing risk
- performing substantive tests (including tests of controls)

Anything requiring significant judgment would be left to the external auditor.

Question 9

What are the five professional associations which compose COSO?

Answer 9

1. AICPA
2. Institute of management accountants (IMA)
3. Institute of Internal Auditors (IIA)
4. Financial Executives Institute (FEI)
5. American Accounting Association (AAA)

Question 10

Should an auditor request to review a predecessor’s work papers regarding contingencies and/or internal control?

Answer 10

Yes. It would be appropriate for a successor to request to review any documentation of continuing accounting & auditing significance.