A3 Engagement Acceptance, Planning, and Risk Assessment Flashcards Preview

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Flashcards in A3 Engagement Acceptance, Planning, and Risk Assessment Deck (22):

The required content of engagement letter

1. the objective and scope of the audit
2. the responsibility of the auditor
3.the responsibility of the management
4. A statement that because of the inherent limitation of an audit and internal control, an unavoidable risk exists
5. identification of applicable financial reporting framework.
6. reference to the expected form and content of any reports.
1. Elaboration(详细说明)of the scope of the audit
2.the form of any other communication
3.arrangement regarding planning and audit performance
4.written representation
5.the agreement of management to make info available to auditor in timely matter
6. the agreement of management to inform the auditor about subsequent events.
7.fees and billing arrangement
8.arrangement concerning the involvement of other auditors, specialist, internal auditors or other staff of the entity
9. arrangement to be made with the predecessor auditor
10.any restriction on the auditor's liability
11.any obligation of the auditor to provide audit doc to other parties
12. additional services to be provided or reference to...


In an initial audit, including a reaudit engagement, it is MANDATORY to make inquires of the predecessor auditor

inquiries should be made regarding:
1. management integrity
2. disagreement with management over accounting principle, auditing procedure etc.
3.the reasons for change of auditors
4. communication to management regarding fraud.


1. Preventing the review of documentation of the predecessor auditor
2. The prospective client is unwilling to make all financial records available to the CPA
3.Management's disregard of its responsibility to maintain an adequate internal control environment

All the above would be a reason NOT TO ACCEPT the engagement

An auditor must consider the availability and adequacy of the client's accounting records and the integrity of management in deciding whether or not to accept a new audit engagement


Management may choose NOT to correct INTERNAL CONTROL deficiencies due to cost-benefit considerations

and this is NOT part of the understanding between the auditor and the client.


Refusal of management to sign a management representation letter casts doubt on the audit evidence gathered and is

a scope limitation


Determine whether there are persons relying or likely to rely on the financial statements who would attach importance to the information.

审计报告发布之后发现有审计程序被省略(未被执行), then assess the importance of the omitted procedures to the auditor's ability to support the previously expressed opinion .


An auditor is unable to complete a procedure during an audit is

a scope limitation.
may result in a qualified or disclaimer of opinion
or even an unmodified opinion if the effect on the F.S were immaterial or if applicable alternative procedures could be performed.


Updating (changing) prior opinion
If, during the current examination, the auditor becomes aware of evidence that affects the prior statement and the opinion that was expressed, the auditor should UPDATE the opinion in the current year's report.

If he updated opinion differs from the previous opinion, the auditors should disclose the reasons in an emphasis-of-matter or other-matter paragraph that discloses the following
1. Date of the auditor's previous report
2. Opinion type previously issued
3. Reason for the prior opinion
4.Changes that have occurred.
5.Statement that the "opinion.....is different"



The standard accountant’s report issued after REVIEWING the financial statements of a nonissuer in accordance with SSARS should state that the: (只是REVIEW ,不是COMPILE)

Accountant is not aware of any material modifications that should be made to the financial statements for them to be in accordance with GAAP.


Compiled financial statements should be accompanied by an accountant's report stating that:

The accountant conducted the compilation in accordance with SSARS


A review report, not a compilation report, includes the phrase,

"is substantially less in scope than an audit


During planning, the auditor is required to

1. obtain knowledge of the client's business and industry
2.Develop the audit strategy
3.Develop the audit plan
4.Perform risk assessment procedures to obtain an understanding of the entity and its environment, including its internal control, sufficient to assess the risks of material misstatement and design further audit procedures.


In designing a written audit plan, an auditor should establish specific audit objectives that relate primarily to the

the financial statement assertions


There are six main financial statement assertions:

a. Completeness
b. cutOff
c. Valuation,allocation and accuracy
d. Existence and occurrence
e. Rights and obligation
f. Understandability and classification


Internal auditor's COMPETENCE and OBJECTIVITY must be assessed.
Competence is reflected by education, professional certification,experience, performance evaluation, the audit plan, audit procedures, and the quality of internal audit documentation.

Objectivity is reflected by the organizational level to which the internal auditor reports, as well as by policies prohibiting audits of areas where the internal auditor lacks independence.
In assessing the objectivity of internal auditor, the independent CPA who is auditing the entity's F.S considers info obtained
1.from previous experience
2.from discussions with management
3.from external quality review ( if performed)
4.from professional internal auditing standard


The nature, extent and timing of the supervision depend upon

1. the size and complexity of the entity
2. the nature of the work assigned.
3.the assessed risks of material misstatement
4.the qualification of the assistant.


The work of an internal auditor may aid external audit in obtaining an understanding of internal control, assessing risk and performing substantive procedures including tests of control

for assertions related material F.S amounts with a high risk of material misstatement or a high degree of subjectivity, the internal auditor's work ALONE CANNOT eliminate DIRECT TESTING by CPA.


When planning the audit, the auditor should consider the extent of involvement of the client's internal auditors in the performance of the audit

Although they can be involved with tests of controls and of details (i.e., substantive tests), their involvement should generally be limited


When planning the audit, the auditor should consider the extent of involvement of the client's internal auditors in the performance of he audit.

the independent external auditor cannot share with the internal auditor ANY OF THE RESPONSIBILITY for audit decisions, judgement, or assessments made as part of the audit, or any of the responsibility for issuing the report.


The auditor should consider the methods the entity uses to process accounting info in planning the audit because such method

influence the design of internal control.


Preliminary judgement about materiality are generally based on

either annualized interim F.S or annual F.S from a prior period.


Procedures that an auditor may consider in planning the audit include

discussing the type, scope, and timing of the audit with the client's management.