The document discusses the process of obtaining an audit engagement, including advertising services, tendering for audits, acceptance procedures, assessing risk levels, customer due diligence, and agreeing terms in an engagement letter. Key acceptance procedures involve ensuring qualifications, resources, obtaining references, communicating with prior auditors, and considering independence. High risk engagements may involve poor performance, lack of financing, or questionable accounting, while low risk engagements have strong controls and conservative policies. The engagement letter defines responsibilities, scope, reporting framework, and report forms.
The document discusses the process of obtaining an audit engagement, including advertising services, tendering for audits, acceptance procedures, assessing risk levels, customer due diligence, and agreeing terms in an engagement letter. Key acceptance procedures involve ensuring qualifications, resources, obtaining references, communicating with prior auditors, and considering independence. High risk engagements may involve poor performance, lack of financing, or questionable accounting, while low risk engagements have strong controls and conservative policies. The engagement letter defines responsibilities, scope, reporting framework, and report forms.
The document discusses the process of obtaining an audit engagement, including advertising services, tendering for audits, acceptance procedures, assessing risk levels, customer due diligence, and agreeing terms in an engagement letter. Key acceptance procedures involve ensuring qualifications, resources, obtaining references, communicating with prior auditors, and considering independence. High risk engagements may involve poor performance, lack of financing, or questionable accounting, while low risk engagements have strong controls and conservative policies. The engagement letter defines responsibilities, scope, reporting framework, and report forms.
1. Obtaining an engagement 2. Accepting an engagement 3. Agreeing terms of an engagement
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ROAD TO BIG4 – ACCA – CFAB/ICAEW 1.Obtaining an engagement • Auditors may advertise their services, within certain boundaries • Auditors will often be invited to tender for audits
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ROAD TO BIG4 – ACCA – CFAB/ICAEW 2. Accepting an engagement
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ROAD TO BIG4 – ACCA – CFAB/ICAEW Procedures before acceptance • Ensure professionally • Consider whether they could be disqualified on legal or qualified to act ethical grounds • Ensure existing • Consider available time, staff resources adequate and technical expertise • Make independent enquiries if • Obtain references directors are not personally known • Enquire whether there are • Communicate with reasons/circumstances behind present auditors the change which the new auditors ought to know, also as a courtesy
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ROAD TO BIG4 – ACCA – CFAB/ICAEW High risk or low risk? LOW RISK HIGH RISK Good long-term prospects Poor recent or forecast performance Well-financed Likely lack of finance Strong internal controls Significant control deficiencies Conservative, prudent accounting Evidence of questionable integrity, policies doubtful accounting policies Competent, honest management Lack of finance director
Few unusual transactions Significant related party or
unexplained transactions
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ROAD TO BIG4 – ACCA – CFAB/ICAEW Procedures after acceptance • Ensure that the outgoing auditors’ removal or resignation has been properly conducted • Ensure that the new auditors’ appointment is valid. • Carry out customer due diligence in accordance with money laundering regulations • Set up and submit a letter of engagement to the directors of the company.
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ROAD TO BIG4 – ACCA – CFAB/ICAEW Customer due diligence • For individuals: obtaining official documents including a photograph and identifying the client’s full name and permanent address • For companies: obtaining similar legal information from the Registrar of Companies; for example, a certificate of incorporation, the registered address and a list of shareholders and directors • Client identification documents must be kepts for a minimum of five years and until five years have elapsed since the relationship with the client has ceased
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ROAD TO BIG4 – ACCA – CFAB/ICAEW 3. Agreeing terms of an engagement
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ROAD TO BIG4 – ACCA – CFAB/ICAEW The purpose of an engagement letter • Define clearly the extent of the firm’s responsibilities and so minimize the possibility of any misunderstanding between the client and the firm • Provide written confirmation of the firm’s acceptance of the appointment, the scope of the engagement and the form of their report
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ROAD TO BIG4 – ACCA – CFAB/ICAEW Contents of engagement letter OS RRRR • Objectives • Scope • Responsibilities of auditor • Responsibilities of managements • Reporting framework • Report (forms)
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ROAD TO BIG4 – ACCA – CFAB/ICAEW Discussion question
You are an audit intern of ABC company,
a client of PwC HCM. You are in charge of payroll section, but when you see the payroll accountant to request the data (payroll sheet…), she refuses to give you the needed data because these data are strictly confidential. What should you do?