AUDIT PLANNING AND MATERIALITY

Flashcards about Audit planning and materiality

What is the purpose of preliminary engagement activities?

To perform procedures regarding acceptance or continuance of the client relationship.

Why is evaluating the integrity of the client's management important?

Evaluate integrity of the client's management because litigations involving CPAs are often due to lack of integrity of client's management.

What are some ways to investigate or research the client's background?

Internet searches, review of financial statements, engaging professionals/investigators, obtaining credit ratings and reports, and inquiring from other firm personnel or third parties.

When communicating with the predecessor auditor, what matters should the incoming auditor inquire about?

Facts/information that might bear on the integrity of the prospective client, the predecessor auditor's understanding as to the reasons for the change of auditors, and any disagreement between the predecessor auditor and the client regarding accounting principles or auditing procedures.

What are some occurrences that would trigger the evaluation of existing clients?

Changes in management, directors or ownership and nature of the client's business.

What should the CPA firm or auditor do regarding independence?

The CPA firm or auditor shall identify, evaluate and respond to any threat to independence.

What does professional competence entail?

Determine if the CPA firm or auditor has the necessary skills and competence.

How does the auditor determine whether they have the required degree of competence?

The auditor should obtain preliminary understanding of prospective client's business and industry to determine whether the auditor has the required degree of competence.

What does the ability to serve the client properly mean for the CPA firm or auditor?

The CPA firm or auditor must have capability, time and resources to perform the audit.

When can a CPA firm or auditor accept or continue an audit engagement?

Management has used acceptable financial reporting framework in the preparation of the financial statements and management agrees to the premise that has acknowledged and understood its responsibilities.

What factors should be considered when determining the acceptability of the financial reporting framework?

The nature of the entity, the purpose of the financial statements, the nature of the financial statements, and whether law or regulation prescribes the applicable financial reporting framework.