Describe the investigations you would carry out and ethical matters you

would consider before you can accept the appointment as the company’s
auditor.
Before beginning to work on an audit, the auditor must complete a number of required pre-
engagement activities that help to determine whether to accept a new client or agree to work
with an existing client.

The Engagement partner should take responsibility for the overall quality on each audit
engagement and by this setting an example to all the other members of the engagement team
through all stages of the audit engagement.
1. Perform a client investigation:
The process activities are clearly focused on understanding and managing audit risk. Evaluate
the acceptance of new clients and continuance as auditors for the existing clients.
Consider risks and exposure involved in the process of decision-making to accept a client/not
(Legal liability, reputational damage, etc.).
Consider;
• Independence.( In fact and appearance)
Auditors must maintain independence in mental attitude i.e. auditors are expected to be
unbiased and impartial with respect to financial statements and other information they audit.
This state of mind is referred to as “independent in fact”.
It is not only important for auditors to be unbiased but they must also appear to be unbiased.
‘Independence in appearance’ relates to others’ perceptions of auditors independence.

The firm and the engagement team are required to be independent in order to comply with the
ethical requirements prior to accepting a new client or to continuing to provide statutory audit
services to an existing client.

• Integrity of the client.

 Integrity of principal owners, key management and those charged with governance (ISA 220,
par 8).
• Changes in the entity for existing clients.
• Information obtained from communication with the predecessor auditor.
• Financial responsibility of the client.
• Legal procedures prior the engagement.
• Conflict of interest
• The entity’s business standing risk
• Information obtained from communication with the predecessor auditor.
2. Determine skills and competence requirements for the engagement.
After having performed the client investigation, the audit/firm should consider whether the
engagement would require special attention or involve unusual risks. Engagement should
only be taken if the audit firm has the skills, competence, necessary staff and experience to
provide an effective and efficient audit.

Matters to consider:
i. The number of audit team members in relation to the size of the client.
ii. Firm personnel’s knowledge base of the relevant industry/subject matters.
iii. Firm personnel experience of relevant regularity/reporting requirements or the ability to
gain the necessary skills and knowledge effectively.
iv. Experience of the audit team members, especially that of management (audit seniors).
v. Does the firm have sufficient personnel with necessary skills and competencies?
vi. Use of an expert and/or other third parties, are experts are available, if needed?
ISA 610: Using the work of internal auditors.
ISA 620: Using the work of an auditor’s expert
vii. Can the audit deadline be met?
viii. ISA 600: Special considerations – Audits of group financial statements (including the
work of component auditors) .
ix. Compliance with quality control as per SAAPS1 and ISQC1.
When you are required to discuss factors that you will consider prior to accepting the
engagement, in addressing quality control, we recommend that you write the following
sentence in addressing compliance with quality control:
‘The audit firm would have to consider whether it could comply with SAAP1 and ISQC1 in
ensuring quality of the audit.

3. Terms and conditions of the audit engagement

4. Procedures performed with regard to acceptance of a new client/continuance with
engagement clients should be documented. Issue an engagement letter to those
charged with governance highlighting the following:
5. 1. Management and auditor’s responsibility.
6. 2. Duty to report any reportable irregularity.

ENGAGEMENT LETTERS
Professional standards require auditors to reach mutual understanding with clients concerning
engagement requirements and expectations and to document this understanding in the form of
a written letter.
Once the terms of the engagement have been established they have to be confirmed through
the engagement letter. When a new client is accepted or when an existing client continues
from year to year an engagement letter should be prepared.

The engagement letter will be sent before the audit, but for an existing auditor continuing to
work for the same client the auditor must issue a new engagement letter if the scope or
context of the assignment changes after initial appointment or there is a change in
circumstances.

The engagement letter:

i. Specifies the nature of the contract between the audit firm and the client.
ii. Minimizes the risk of any misunderstanding of the auditor’s role.
iii. Should be reviewed every year to ensure that it is up to date but does not need to be
reissued every year unless there are changes to the terms of the engagement. Many
firms of auditors choose to send a new letter every year to emphasise its importance to
clients.

Purpose of the engagement letters:

The engagement letter actually acts as a contract.

It serves as a means for reducing risk of misunderstandings with the client and as a means of
avoiding legal liability for claims that the auditors did not perform the work promised.
The engagement letter

 Sets out the type of engagement.

 Avoid/minimise misunderstanding between client and auditor.
 Records the following:
i. auditors acceptance of the job
ii. objectives of the engagement- lays out the nature of the work to be done and
the type of assurance to be given if any
iii. managements’ responsibilities
iv. auditors’ responsibilities
v. scope
vi. format of any reports.

The engagement letter is to sent and the terms agreed with client and signed, preferably
before the commencement of the engagement.