PRELIMINARY ENGAGEMENT ACTIVITIES

Required by PSA 300 Public or publicly-held Audit committee

To determine whether: companies
a. Auditor is qualified Private companies Management
b. FSs are auditable or not CONTENTS OF THE ENGAGEMENT LETTER
M managements responsibility
CLIENT ACCEPTANCE OR CONTINUANCE S scope
o Integrity of the client U unrestricted access
Do a background investigation. R report
Financial information O objective
Inquiry T timetable and fees
Communication w/ predecessor auditor I inherent limitations
- Initiated by the successor auditor A auditors responsibility
- Clients permission is required AUDITS OF COMPONENTS
with permission without permission Factors to be considered whether to send a separate engagement
1. Reason for the Consider the matter in letter to the component:
change evaluating whether to S separate audit report
2. Disagreement accept or not. E extent of any work performed
between predecessor A who appoints the auditor
and client O degree of ownership
3. Any facts regarding I degree of independence
integrity of client L legal requirements
- Written or oral RECURRING AUDIT
o Competence of the engagement team GR: Do not send a new engagement letter.
Obtain preliminary knowledge of clients business industry. except:
o Compliance with relevant ethical requirements M misunderstanding
o Significant matters R revised or special terms
Evaluate clients at least once a year or upon occurrence of major S change in senior management
events. R change in other reporting requirements
O change in ownership
ETHICAL REQUIREMENTS F change in financial reporting framework
Including independence L change in legal or regulatory requirements
N change in nature or size of the client
TERMS OF THE ENGAGEMENT CHANGE IN ENGAGEMENT
A. Preconditions for an audit are present 1. Determine reason for change.
a. Financial reporting framework is acceptable Valid?
b. Managements responsibility Change in circumstances Yes
Preparation of FS Misunderstanding Yes
Scope limitation No
Adequate IC system
2. If reason is valid,
Access to:
Accept the change.
- All information relevant to preparation of FS
Agree on new terms.
- Additional information for purpose of the audit
Do not make reference to original engagement.
- Unrestricted access to persons within the entity
3. If reason is not valid,
B. Confirm understanding with client
through engagement letter Refuse the change.
- contains agreed terms Continue with original engagement.
- in the interest of both auditor and client that it be If not permitted to continue original engagement,
submitted before commencement of the audit withdraw and report to other parties if such obligation
- addressed to: exists.