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CHAPTER 5 (Part 3) - Coggle Diagram
CHAPTER 5 (Part 3)
Acceptance
New auditors must ensure they are appointed in a proper & legal manner
B4 accepting nomination
Ensure professionally qualified to act
Whether disqualified on legal/ethical grounds
Ensure existing resources adequate
Available timr, staff and technical expertise
Obtain reference
Independent enquiries if directors not personally known
Communicate with present auditor
Whether there are reasons/ circumstances behind the change
There are any prof. reasons as to why they shouldn't accept appointment
After accepting nomination
Ensure outgoing auditor's removal/ resignation properly conducted
Ensure new appointment properly conducted
Agree the terms of engagements
If audit client refuse to permission to correspond
New auditor shouldn't accept appointment
Client screening
Stringent checks on potential client
Specific risks should be identifies & documented
Might be necessary to assign specialist in response of the risks
Engagement economics
Expected fees
Should reflect
Level of risk expected
Conflict of interest
B4 accepting a new client or change in client's circumstances
Take reasonable steps to ascertain circumstances
Indicate conflict of interest
There will be one in the future
Threats
Objectivity
How
Interest of client A and B are in conflict
Interest of auditor & client are in conflict
Conflict between client's interest
If continuance/ acceptance would materially prejudice a client
Even if safeguards have been taken
Appointment shall not be accepted/ continued
Prejudice might arise due to
Leakage of info
Audit firm is being force to choose between the interest of diff. clients
Safeguards
Notify all known relevant parties
Obtain their consent
Use of separate engagement letters
Procedures to prevent access to info
Separate teams
Filing & password protection
Clear guidelines for members of each engagement team on issues of security & confidentiality
Use of confidentiality agreements signed by employees & partners of firm
Regular review of the application of safeguards by independent partner/ other senior individual
Advise one or more clients to seek additional independent advice
Agreeing the terms of audit engagement
Accept/ continue audit engagement only when basis has been agreed through
Establishing certain preconditions for an audit are present
Confirming that there is a common understanding bet. auditor & management of trems of engagement
Preconditions
Use by management acceptable financial reporting framework in the preparation of fs
Obtain management agreement (written rep.) that it ackowlerge its responsibilities
Preparing fs
Establish internal control
Providing the auditor with access to all records and books and staffs
Engagement letters
Written terms of an engagement in the form of letter
Purpose & content
Agree terms with management / TCWG
B4 audit engagement to avoid misunderstanding
Content
Objective & scope
Respinsibilities
Applicable FR framework
Expected form & content of any report
Statement stating that report will differ from expected form and content
Reference to legislation
Fees and billings
Reissuing
Entity misunderstood
Revised or special terms
Recent change of senior management
Significant change in ownership
Change in many things
Quality control at firm level
Areas
Firm & leadership responsibilities for quality within the firm
Promoting culture where quality is essential
Human resources
Recruiting & retraining staff with right capabilities
Engagement performance
Implementing policies & procedures
To ensure quality control at individual engagement level
Monitoring
To ensure they remain relevant, adequate, effective
Review
Peer
Carried out by another partner in the assurance firm
Hot/ Pre-issuance/ EQCR
Carried out before auditor's report is signed
Cold/ Post-issuance
Carried out after auditor's report is signed
Monitoring
Ongoing evaluation
Whether firm has kept up to date with regulatory requirements
Periodic inspection
Inspecting audit engagement of each engagement partner over an inspecting cycle
Quality control on an individual audit
Audit engagement partner is responsible
Direction, supervision, review
Direction
Partner are required to hold meeting with audit team
Supervision
Audit is supervised by overall engagement partner
More practical supervision
Senior to junior staff
Review
Practical review
Senior to junior staff
Quality control review
Required for audit of listed entities
Any other audit where qcr is required
Conflict between auditor's interest with client's
Public practice
Shall not accept / continue engagement
There is/ likely to be
How
Auditor competes directly with client
Has a joint venture with a company that competes with client
Financial gain received from others
Due to engagement/ using info of client
Unless disclose to client in writing/ advance agreement is obtained
Obtaining audit engagement
Advertising
Advertising or other form of promotion
However
The medium should not reflect adversely on the member, ACCA or the accountancy profession
Should not, either in content or presentation
Bring ACCA into disrepute or bring discredit to the member, firm or accountancy profession
Discredit the service offered by others, whether by claiming superiority for the member's or firm's own services or otherwise
Be misleading, either directly or by implication
Fall short of the requirements of UK Advertising Standards Authority's Code of Advertising and Sales Promotion, notably as to legality, decency, clarity, honesty and truthfulness
Any reference of fees should not mislead the reader as to the price range and time commitment
Should not amount to harassment of prospective clients
Commission, fees, reward in return of the intro of a client is permitted
Safeguards are put in place
Disclosure to the client