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Issues to consider before accepting clients
Ability for firm to audit the entity, Audit would comply with legal and relevant requirements, and the entities integrity.
T/F: The current auditor must contact the predecessor auditor for information on the client.
True
What are some things that the auditor must investigate about a prospective client?
Who are the owners, who is charge of governance, what is their business reputation
What information should the successor auditor ask the predecessor auditor?
1. Integrity of management
2. potential fraud
3. disagreements
4. reason for change in auditor
5. Communication to audit committee
6. Predecessors understanding of the nature and relationship of related parties and significant unusual transactions.
Factors in determining staffing requirements
Engagement size, complexity, risk, special expertise required, personnel availability, and timing of the work
What are three topics that should be discussed to develop an understanding between the firm and the entity?
The engagement letter, using the work of the internal auditor, the role of the audit committee
Engagement Letter
A letter that formalizes the contract between the auditor and the entity and outlines the responsibilities of both parties.
T/F: The timing and fees are on the engagement letter
True
Three factors that affect the reliability of an internal audit function
Objectivity, Competence, their approach
Audit Committee
A subcommittee of the board of directors that is responsible for overseeing both the internal audit function and the annual financial statement audit by independent CPAs.
Audit Strategy
a strategy that sets the scope, timing, and direction of the audit and provides the basis for developing a detailed audit plan
Audit Plan
documents the nature, timing, and extent of procedures to be performed
T/F: The audit plan is less detailed than the audit strategy
False
Steps that should be performed while planning an audit
1. Assess business risk
2. Establish Materiality
3. Consider Multilocation
4. Assess the need for specialists
5. Consider violations of laws or regulations
6. Identify related parties
7. Consider Additional value-added services
8. Document the audit strategy, audit plan, and prepare audit program
Why is Business Risk important?
It helps the auditor reduce audit risk by understanding the entity and it's environment
Tolerable Misstatement
The amount of overall materiality used to plan and perform audit procedures at the account or disclosure level.
How would auditors assess a specialist?
Competence & Objectivity,
Inputs used by specialist,
Their outputs
Reasonableness of work and assumptions,
