VICTOR NDATI OKILA BBM/2727/12 BBM 402- AUDITING THEORY & PRACTICE ASSIGNMENTS 1 LECTURER MR KOGEI

Question 1. Contents and importance of IAS 210 The purpose of international standard on auditing number 210 reiterates the importance of accepting an audit engagement only when the basis of which the audit is to be performed is expressly agreed. Agreement to the engagement is accepted by the auditor only when the following basis upon agreement is met. a) Establish whether the necessary preconditions for the audit are present and, b) onfirming there is a common understanding between the auditor and the company of the terms of audit engagement and of the respecti!e responsibilities of the auditor, management and those charged with go!ernance. The purpose of this internal standard "#A 210 is therefore to i) Agreeing the term of engagement with the client and
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The auditor$s response to a re%uest by the client to change the term terms of an engagement to one that pro!ides a lower le!el of assurance.

The auditor and the client should therefore put the terms agreed abo!e in form of a written contract. The recorded agreed terms are put in terms of an e !"!e#e $ %e$$e& or other suitable form. "A# 210 assists auditor in the preparation in preparation of engagement letter relating to audits of financial statements. The standard also becomes applicable when '$(e& )e&*+,e) such as taxation, accountancy or ad!isory ser!ices are to be pro!ided. #eparate letters may be appropriate. The principle content discussed in "A# 210 is the engagement letter. E !"!e#e $ %e$$e& The content of the engagement letter will include among other things & & & The ob'ecti!e of the audit (anagement responsibility of the financial statements The scope to the audit ) this include references to applicable legislation, regulations or pronouncements. & & *orm of any report or communications of results to the engagement. +nrestricted access to whate!er records, documentation, and other information re%uested in connection with the audit. Re,-&&+ ! "-.+$ This is also highlighted in "#A 210. ,ere the auditor should whether circumstances that ha!e ta-en place re%uire the terms of engagement to be re!ised and whether there is a need to remind the client of the existing terms of engagement. Acceptance for change in engagement.-this refers to the re%uest from the client for the auditor to change the engagement. The auditor may before the completion of the audit engagement be

re%uested to change the engagement to one which pro!ides a lower le!el of assurance, should consider the appropriateness of doing so.

Question 3. The following are the wa s in which an auditor can reduce claims form third parties during or after the engagement. Third parties are indi!iduals with whom the auditor does not ha!e contractual relationship. An example will be lenders, potential in!estors, customers, suppliers and analysts. The following are some of the ways the auditor can use to reduce ris- of third parties. & .uality control& this can be done through preparation of written audit programs and proper wor-ing papers. & & /repare a clear %e$$e& '/ e !"!e#e $ to pre!ent any misunderstanding that may arise. Ta-ing professional indemnity assurance& This co!ers for any losses the auditor might incur in case there are claims for damages from third parties who relied on his report. & "ncluding .+),%"+#e& )$"$e#e $) where appropriate. This is to co!er himself in the e!ent that he has gi!en an opinion in an area where he is not an expert and a third party relies on the information. & omply with the generally accepted accounting standards and the codes of ethics. This minimi0es the ris- of the auditor ma-ing material misstatement on his report & 1btaining a thorough -nowledge of the client ) An auditor need to ha!e -nowledge of the clients business through understanding of the internal system so that he can note -ey areas that are prone to ris-s.

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Ta-ing legal and other special ad!ice& "nformation gotten from expert is most of the time more reliable for any other source of information. 2etting the right information will reduce the chances of errors hence reduces the ris- of litigations from third parties.

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A!oid ris-y audit assignments or carrying our more extensi!e wor- ) 3is-y audits may be where management is suspected to be in!ol!ed in fraud or where the clients boo-s of accounts are not in order.

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"n!estigating prospecti!e clients& arrying our bac-ground chec- on the clients business before ta-ing the engagement will help in early disco!eries of areas or situations the company is in that may increase the ris- of attracting legal proceedings from third parties. This can be pre!ented by doing a thorough bac-ground chec- on the client.

Question ! "ist and e#plain rules of conduct of professional ethics that go$ern the %eha$ior of an auditor as issued % IC&A'. 3ecently, because of many scandals in the corporate world, auditors are expected to follow specific code of conduct. "t is necessary that the auditor exercises professional due care and follow the standards set forth by the regulatory bodies. The following are rules of professional conduct and professional ethics that go!ern the beha!ior of an auditor as issued by " /A4 i) ompetence

An auditor should carry his wor- with due care and s-ill in tandem with professional and ethical standards laid down. The member should command authority in his profession by exhibiting -nowledge in the wor- he is doing. ,e should ha!e successfully passed all the re%uired examinations to pro!e his competency in his area of field of wor-. A member should also refrain from ta-ing assignments which he -nows he is not %ualified to do. ii) "ntegrity.

A member has to be honest, straight forward and sincere in his approach to audit wor-. 5orshould be performed with honesty and diligence. They should obser!e the law of disclosing any information expected by the law and profession. iii) 1b'ecti!ity

Auditors are re%uired to be ob'ecti!e when gathering, e!aluating, and communicating information regarding an acti!ity or process. 6udgment should not be based on the interest of the auditor or the interest of others. i!) onfidentiality

An auditor is re%uired to protect the information ac%uired from their clients. "nformation should not be disclosed without the proper legal authority or else there is professional obligation. !) "ndependence

A member in public practice should be or appear to be free in e!ery professional assignments he underta-es of any interest which might destruct him from being ob'ecti!e. ,e should be able to stand his grounds when gi!ing 'udgment on matters that he is sure whose facts are right and do not infringe on the accepted principal and guidelines of auditing. ,e should be impartial and not allow pre'udices to bias to affect his 'udgment. ,e should be free from any interest that might conflict with the proper approach of his professional wor-. 2uidance to matters of independence are gi!en in situations where the auditor independence may be compromised. They include. a) *ees "t is not right for the auditor to recei!e extraordinary high fees from a client or a group of client. b) /ersonal and family relations ,e should ta-e steps to ma-e sure family relations or personal relationships do not interfere with independence. c) *inancial in!ol!ement with clients in form of
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7eneficial shareholdings 8oans to and from client& this should be a!oided at all costs.

d) 2oods and ser!ices ) (embers should resist from accepting goods and ser!ices from clients on terms that seem to be fa!orable to the generality of the client$s employee. e) 3ecei!ership 9 8i%uidation 5here a company, a member is auditor goes into recei!ership, the member should not accept an appointment as a recei!er manager unless at least two years ha!e elapsed. f) /re!ious employment. A member ha!ing left employment from a company from a company he was offering ser!ice, should not accept to be engaged as an auditor until after 2 years ha!e elapsed.