AUDIT PROCESS: PRE-ENGAGEMENT ACTIVITIES

Question 1

AUDIT PROCESS

Answer 1

A SERIES OF PROCEDURES AND ACTIVITIES THAT ARE PERFORMED TO OBTAIN EVIDENCE TO SUPPORT THE AUDITORS’ OPINION.

Question 2

REASONABLE ASSURANCE

Answer 2

AUDITORS GIVES A HIGH BUT NOT ABSOLUTE LEVEL OF CONFIDENCE THAT THE FINANCIAL STATEMENTS ARE FREE FROM MATERIAL MISSTATEMENT

Question 3

INHERENT LIMITATIONS

Answer 3

The built-in restrictions that prevent an audit from guaranteeing 100% accuracy or detecting all errors or fraud

Question 4

PRE-ENGAGEMENT ACTIVITIES

Answer 4

BEFORE THE AUDIT BEGINS - ENSURES AUDITOR INDEPENDENCE AND ETHICAL COMPLIANCE, IDENTIFY AND ASSESS RISKS BEFORE ACCEPTING OR CONTINUING THE ENGAGEMENT

Question 5

WHEN TO NOT ACCEPT AN AUDIT

Answer 5

ISA PROHIBITS AN AUDITOR FROM ACCEPTING AN AUDIT WHERE:
(1) The client imposes a limitation on the scope of the auditors work.
(2) The pre-conditions are not met

Question 6

PRE-CONDITIONS

Answer 6

1. MANAGEMENT MUST ACKNOWLEDGE THEIR RESPONSIBILITY FOR:
   - Preparing the financial statements in accordance to the applicable financial reporting framework
   - Internal controls necessary to ensure the FS are free from material misstatements whether from fraud or error.
   - Providing auditor access to all records, documents and people relevant to the audit
2. IF THE FINANCIAL REPORTING FRAMEWORK IS ACCEPTABLE FOR THE ENTITY

Question 7

2. CLIENT INVESTIGATION

Answer 7

ASSESS THE INTEGRITY OF MANAGEMENT
CHECK FOR INDEPENDENCE AND COMPETENCE OF AUDITOR
UNDERSTAND THE NATURE OF THE BUSINESS
EVALUATE RISKS OF ASSOCIATION
COMMUNICATION WITH PREDECESSOR AUDITOR

Question 8

3. AUDITORS COMPETENCE

Answer 8

The necessary experience, skill and knowledge including the availability of experts, sufficient staff member and enough time for the audit

Question 9

REASONS FOR NOT ACCEPTING THE ENGAGEMENT

Answer 9

ETHICAL - Independence issues (SAICA and IRBA CPC)
STATUTORY
- Lack of registration as an auditor according to APA, only a RA can perform an audit in SA.
- Disqualified from acting as auditor - Companies ACT s90
- Not appointed in according with law
- If client refuses to acknowledge their responsibilities and won’t sign an engagement letter - the engagement must be rejected.

Question 10

4. ESTABLISHING TERMS OF THE ENGAGEMENT

Answer 10

THE AGREED TERMS OF THE ENGAGEMENT MUST BE RECORDED IN AN ENGAGEMENT LETTER.
AUDITORS RIGHTS AND DUTY ON HOW THE AUDIT WILL BE RUN AND COMMUNICATE THIS TO CLIENT.
MANAGEMENT HAS TO SIGN THE LETTER

Question 11

5. CONTENTS OF THE ENGAGEMENT LETTER

Answer 11

SCOPE OF THE AUDIT - Auditors and management’s responsibilities
AUDIT LIMITATIONS
AUDIT FEES AND PAYMENT TERMS