CH6 accepting engagements

Question 1

what impacts fee levels?

Answer 1

• seniority/prof experience

Question 2

What should be disclosed and discussed with the client regarding fees?

Answer 2

The basis for fee computation

This should be done as soon as possible, likely included in a tendering document.

Question 3

What factors should be considered when determining fees according to the Code of Ethics?

Answer 3

• The seniority and professional experience of the persons necessarily engaged on the work
• The time expended by each
• The degree of risk and responsibility which the work entails
• The nature of the client’s business, the complexity of its operation and the work to be performed
• The priority and importance of the work to the client
• Together with any expenses properly incurred

Question 4

Fill in the blank: Fees should be determined with reference to the _______ of the persons necessarily engaged on the work.

Answer 4

[seniority and professional experience]

Question 5

True or False: The complexity of the client’s operation is not a factor in determining fees.

Answer 5

False

Question 6

Fill in the blank: The degree of _______ and responsibility which the work entails is a factor in fee determination.

Answer 6

[risk]

Question 7

What is one of the factors that influences fee determination related to the client’s work?

Answer 7

The priority and importance of the work to the client

This indicates how urgent or significant the work is for the client.

Question 8

According to the Code of Ethics, what should be considered along with the factors for fee determination?

Answer 8

Any expenses properly incurred

Question 10

What is the first aspect assurance providers will seek to determine during risk analysis?

Answer 10

Whether the directors/management of the company appear to have integrity

This can include looking at accounting policies, qualifications of the finance director, and obtaining references from bankers or solicitors.

Question 11

How do assurance providers assess the financial record of a company?

Answer 11

By looking at recent and projected financial performance

This helps determine the company’s financial stability and reliability.

Question 12

What is the significance of a company’s internal control in risk analysis?

Answer 12

To determine whether the company appears to have good internal control or, at minimum, a good control environment

This can be assessed through the existence of an internal audit department or inquiries of management.

Question 13

What type of transactions or structures are assurance providers concerned with during risk analysis?

Answer 13

Unusual transactions or a complex structure

This is assessed by reviewing published financial statements and publicly available information at Companies House.

Question 14

What factors impact the acceptability, audit approach, and fee charged to a client?

Answer 14

The integrity of management, financial record, internal control, and complexity of transactions

These factors guide assurance providers in their decision-making process.

Question 16

What must auditors consider when deciding to accept an assurance engagement?

Answer 16

Auditors must consider the following:
* The results of risk analysis
* Ethical issues preventing acceptance
* Firm’s experience and resources
* Legal requirements related to incoming and outgoing auditors

Question 17

What is one factor that auditors evaluate regarding risk analysis?

Answer 17

The results of risk analysis

Question 18

True or False: Auditors can accept an engagement even if there are ethical issues preventing acceptance.

Answer 18

False

Question 19

What does the firm need to have to undertake an assurance engagement?

Answer 19

Sufficient experience and resources

Question 20

Fill in the blank: For an audit engagement, auditors must ensure that all _______ requirements associated with the appointment of the incoming auditors have been met.

Answer 20

legal

Question 21

What must be met regarding the outgoing auditors when accepting an audit engagement?

Answer 21

The removal or resignation legal requirements

Question 22

Who appoints the auditor of a company?

Answer 22

The members (shareholders) of a company

Question 23

When is the auditor appointed?

Answer 23

At an annual general meeting (AGM) or other general meeting where financial statements are approved

Question 24

What is required for the appointment of an auditor?

Answer 24

An ordinary resolution

Question 25

What happens if an auditor is not appointed within 28 days?

Answer 25

The existing auditor is deemed to be reappointed

Question 26

What is the deadline for appointing an auditor after the accounts must be filed?

Answer 26

By the end of 28 days

Question 27

Fill in the blank: The auditor must be appointed by an _______.

Answer 27

[ordinary resolution]

Question 28

True or False: The auditor can be appointed at any time without a deadline.

Answer 28

False

Question 29

What must be removed before appointing a new auditor?

Answer 29

The previous auditor

Question 30

What must the auditor do when removed?

Answer 30

Write a statement of circumstances and deposit it at the company’s registered office explaining the circumstances of their removal. ## Footnote If no circumstances exist, a ‘statement of no circumstances’ must be completed, but this is not applicable for auditors of listed companies.

Question 31

What is a requirement for auditors of listed companies when removed?

Answer 31

They cannot complete a ‘statement of no circumstances’. ## Footnote This means they must provide a statement of circumstances regardless.

Question 32

What rights does an auditor have during the appointment of a new auditor?

Answer 32

The right to receive notice, attend and speak at the meeting appointing the new auditor. ## Footnote This typically occurs during the Annual General Meeting (AGM).

Question 33

What right allows auditors to defend their position against removal?

Answer 33

The right to have written representations circulated to all the members. ## Footnote This ensures auditors can explain why they should not be removed.

Question 34

True or False: Auditors can be removed without any explanation.

Answer 34

False. ## Footnote Auditors must provide a statement of circumstances unless they are from listed companies.

Question 35

Fill in the blank: The auditor must deposit a statement of circumstances at the company's _______.

Answer 35

[registered office]. ## Footnote This is a formal requirement when an auditor is removed.

Question 37

What must an auditor do if they resign during their year in office?

Answer 37

Submit written notice to the company’s registered office and a statement of circumstances explaining their resignation.

Question 38

What is required if no circumstances exist for an auditor's resignation?

Answer 38

A ‘statement of no circumstances’ must be completed.

Question 39

Is the ‘statement of no circumstances’ option available for auditors of listed companies?

Answer 39

No, it is not an option for auditors of listed companies.

Question 40

What right does an auditor have regarding a general meeting after resignation?

Answer 40

The auditor has the right to request that the directors convene a general meeting to explain the circumstances of their decision.

Question 41

What can an auditor require the directors to do before the general meeting?

Answer 41

The auditor can require the directors to circulate the statement of circumstances in advance of the meeting.

Question 42

What is a key part of accepting an audit engagement?

Answer 42

Ensuring that the pre-conditions of an audit are present ## Footnote This includes assessing the financial reporting framework and management's responsibilities.

Question 43

What must be established regarding the financial reporting framework in an audit?

Answer 43

It must be acceptable ## Footnote The framework should align with relevant accounting standards.

Question 44

What responsibilities must management understand for an audit?

Answer 44

Management is responsible for: * Preparing financial statements * Maintaining a system of internal control * Providing information and access to auditors ## Footnote These responsibilities are crucial for the audit process.

Question 45

What should happen if the pre-conditions of an audit are not present?

Answer 45

The engagement should not be accepted ## Footnote Auditors must ensure all conditions are met before proceeding.

Question 46

What is required under ISA 210 (UK) regarding audit engagements?

Answer 46

Engagement letters are required under ISA 210 (UK) ## Footnote This standard pertains to agreeing the terms of audit engagements.

Question 47

What should the engagement letter cover regarding the audit's objective?

Answer 47

The objective and scope of the audit of financial statements ## Footnote This includes reference to applicable legislation, regulations, financial reporting framework, and auditing standards.

Question 48

What are management’s responsibilities as stated in the engagement letter?

Answer 48

Responsibility for the financial statements and the company’s system of internal control ## Footnote This outlines the expectations for management in the audit process.

Question 49

What are the auditor’s responsibilities mentioned in the engagement letter?

Answer 49

The auditor’s responsibilities ## Footnote This specifies what the auditor is accountable for during the audit.

Question 50

What should be included about reports and communications in the engagement letter?

Answer 50

The form and content of reports and communications that will arise from the audit ## Footnote This ensures clarity on what will be reported to management and stakeholders.

Question 51

True or False: An audit guarantees that all material misstatements will be discovered.

Answer 51

False ## Footnote Due to the test nature and other limitations of an audit, there is an unavoidable risk that some material misstatement may remain undiscovered.

Question 52

What access rights do auditors have according to the engagement letter?

Answer 52

Auditors are entitled to unrestricted access to records, documents, and other information requested in connection with the audit ## Footnote This is crucial for conducting a thorough audit.

Question 53

What expectation is set regarding management's written communications?

Answer 53

Management will provide written representations ## Footnote This is often a standard requirement in audit engagements.

Question 54

What practical matters may the engagement letter cover?

Answer 54

Arrangements relating to planning, using the work of experts, liaising with the internal audit department, fee, and restriction of auditor liability ## Footnote These details help in managing the audit process effectively.

Question 55

Is it necessary to issue a new letter each year for recurring audits?

Answer 55

No, it is not necessary to issue a new letter each year ## Footnote Auditors should consider whether a new letter is required each year.

Question 56

What factors may indicate a new letter is required for an audit?

Answer 56

* Indications that the client misunderstands the terms of the engagement * Revised or special terms of the engagement * A recent change in senior management or directors * A significant change in ownership of the company * Legal or regulatory requirements * A change in the financial reporting framework adopted in the preparation of the accounts ## Footnote Each factor prompts auditors to reassess the need for a new letter.

Question 57

True or False: A significant change in ownership of the company may indicate a new letter is required.

Answer 57

True

Question 58

Fill in the blank: A recent change in _______ may indicate a new letter is required.

Answer 58

senior management or directors

Question 59

What should auditors consider every year regarding the audit letter?

Answer 59

Whether a new letter is required ## Footnote This consideration is important to ensure clarity in the engagement.

Question 60

Fill in the blank: Legal or _______ requirements may indicate a new letter is required.

Answer 60

regulatory

Question 61

What is one reason auditors may need to issue a new letter?

Answer 61

Revised or special terms of the engagement ## Footnote Changes in engagement terms can affect the audit process.

Question 62

Fill in the blank: A change in the financial reporting _______ adopted in the preparation of the accounts may indicate a new letter is required.

Answer 62

framework