Independence

Audit Evidence Accepting Engagement Retention of Existing Clients

According to the firm’s quality control policies and Ability to serve the client properly Cients should be evaluated at least once a year
refers to the information obtained by the auditor in procedures, there must be a system for deciding
arriving at the conclusions on which the audit opinion is upon occurrence of major events such as:
whether to accept or reject an audit engagement 1. changes in management
based. Comprise source documents and accounting records Making this decision the firm should consider the
underlying the financial statements and corroborating following Not all audit engagements are to be
Integrity of the prospective 2. directors
information from other sources. This evidence will either client / management 3. ownership
accepted by the auditors.
prove or disprove the validity of management assertion. 4. nature of client’s business
5. other changes that may affect the scope of
Issuing a Report SA request permission examination.
In general, conditions which would have caused an
Completing the Audit RID accounting firm to reject a prospective client
may also result or lead to a decision of
Performing Substantive Test NO SA considered
Client’s gives permission refusal, perform terminating an audit engagement.
Considering Internal Control other procedures Clients should be evaluated At least once a year or
YES Successor Predecessor
Audit Planning Auditor Auditor
SA request RID from PA Major events occurred
Accepting an Engagement \SA) (PA)

Audit process – the sequence of different activities involved in an audit. NO

PA replies that no
Recurring Audits
Client’s gives permission to reply information would The auditor normally does not send new
YES
be provided CLIENT engagement letter every year. However, the
following factors may cause the auditor to
Engagement Letter PA replies to the requested Information
send a new engagement letter.
written contract between the auditor and the client
- Any indication that the client misunderstand the objective and scope
Contents ;
of the audit.
Additional Contents: - Any revised or special terms.
Objective and Scope – which is to express an opinion in the financial statement 1. Billing arrangements
2. Management written - A recent change of senior management, board of directors or
The management responsibility for the fair presentation of the financial statement representation management
3. Arrangements including - Legal requirements and other government agencies pronouncements
The scope of the audit the involvement of the
experts If the auditor opt not to send a new engagement letter, the auditor
The forms or any reports or other communication that the auditor expects to issue. 4. Acknowledgement from should remind the client of original agreement
management
The fact that because of the limitations of the audit, there is an unavoidable
risk that material misstatements may remain undiscovered. Occurrence
Importance
The responsibility of the client is to allow the auditor to have unrestricted o Avoid misunderstandings with – T&E that have been recorded have
access to whatever records, documentation and other information occurred and pertain to the entity
requested in connection with the audit. respect to the engagement Financial Statement Completeness
Document and confirm the auditor’s Assertion – all T&E that should have been recorded
have been recorded
Audit Procedure
acceptance of the appointment.
Accuracy
– amounts that other data relating to
Selection of the appropriate procedure to satisfy a particular
ertion Occurrence C o m plete n ess Sample: recorded T&E have been recorded
assertion is affected by a number of factors including the
auditor’s assessment of materiality and risk. Regardless, of Flow of the Audit ss Accuracy Salaries & appropriately
Cutoff

A
the procedures selected, there is only one basic criterion. C utoff Classification wages Cost – T&E have been recorded int eh correct
The procedure selected should enable the auditor to gather accounting period
sufficient and appropriate evidence about a particular T r a n s a cti o n L e v els Classification
assertion.
Audit ertion
- T&E have been recorded in the proper
Financial ss
accounts
Procedure
; R i g h ts & O b li g a ti o n s Completeness Sample:

A
Statement
Below are the audit procedures
used by the auditor to gather A c c o u nt B ala n c es
Inventory Existence
sufficient and appropriate evidence E xist e n c e V al u a ti o n a n d all o c a ti o n Balance – AL&E interest exists
Rights and obligations
I n s p e cti o n – the entity holds or controls the rights
involves examining of records, documents, or tangible assets P r e s e n t ati o n & Dis cl o s u r e to assets and liabilities are the
O b s e r v ati o n consists of looking at a process or procedure being performed by others Audit A c c u r a c y & V al u ati o n obligations of the entity.
As

In q uir y consists of seeking information from knowledgeable persons inside
C o n fi r m ati o n
consist of the response to an inquiry to corroborate information contained in
C o m p u t ati o n
A n al y ti c al p r o c e d u r e s
se Sample: Completeness
Evidence r ti
on
O c c u r r e n c e & R i g h ts & O bli g a ti o n s Related Party - All AL&E interests that’s should have
been recorded have been recorded.
or outside the entity. Disclosure
C l a s sifi c a ti o n & U n d e r st a bilit y Valuation and allocation
verify assertions
C o m plete n ess – AL&E interest are included in the
the accounting records. against criteria financial statements at appropriate
amounts and any resulting valuation or
consists of checking the arithmetical accuracy of source documents (GAAP, PFRS or IFRS), allocation adjustments are appropriately
and accounting records or performing independent calculations
Audit Audit Assertion recorded
consists of the analysis of significant ratios and trends including the
resulting investigation of fluctuations and relationships that are
inconsistent with other relevant information or deviate from predicted
Opinion Management Assertions and
Financial Statement Assertions Occurrence and rights and obligations
amounts. – disclosed events, transactions, and
implicit or explicit claims and
Who appoints the auditor of the component other matters have occurred and pertain
Audit of Components Whether a separate audit report is to be issued on the component
representations made by the
management
to the entity
Completeness
When the auditor or a parent entity is also – all disclosures that should have been
Legal requirements included in the financial statements
the auditor of its subsidiary, branch or have been included
division (component), the auditor should The extent of any work performed by the other auditor Classification and understandability
consider the following factors in making a – financial information is appropriately
decision of whether to send a separate Degree of ownership of parent presented and described, and disclosures
letter to the component are clearly expressed
Degree of independence of the component’s management. Accuracy and valuation
– financial and other information are
disclosed fairly and at appropriate
amounts