tailieunhanh - Lecture Auditing and assurance services in Australia: Chapter 6 - Gay, Simnett

Chapter 6 - Planning, knowledge of the business and evaluating strategic business risk. After studying this chapter you should be able to: explain why the decision to accept a client is important, and describe the primary features of client acceptance and continuance; indicate the purpose and content of an audit engagement letter; describe the decisions made by an auditor in preparing an audit plan, the knowledge on which the decisions are based and the procedures used to obtain that knowledge;. | CHAPTER 6 PLANNING, KNOWLEDGE OF THE BUSINESS AND EVALUATING STRATEGIC BUSINESS RISK STEPS IN ACCEPTING AN AUDIT QUALITY CONTROL POLICIES AND CLIENT EVALUATION PROCEDURES Procedures carried out before accepting a new client or continuing with an existing client include: Reviewing financial information regarding the client Making inquiries of third parties such as solicitors and bankers Communicating with previous auditor Ensuring firm has technical expertise to carry out audit Ensuring accepting engagement will not conflict with the profession’s code of professional conduct COMMUNICATION WITH PREVIOUS AUDITOR Ensures interests of shareholders, incoming auditor and existing auditor are protected. Allows existing auditor to advise prospective auditor of any professional matters they should be aware of before accepting the engagement. Nominated auditor should request client’s permission to communicate with previous auditor. If client refuses permission, normally decline nomination. If permission granted, ask previous auditor for all information necessary to decide whether nomination should be accepted. ENGAGEMENT LETTER A letter from auditor to client that documents and confirms auditor’s acceptance of the appointment. Should include: Objective and scope of audit Responsibility of management for financial report Form of any reports An explanation of extent to which an audit can be relied upon to detect material misstatement Auditor’s right to unrestricted access to records, documents and other information necessary to complete audit AUDIT PLANNING Planning stage a very important stage of the audit Two aspects: Audit plan - outlines the expected scope and conduct of audit Audit program - directs the nature, timing and extent of audit procedures MAJOR STEPS IN THE AUDIT PROCESS In every audit of a financial report there are five identifiable stages. These stages are: Obtaining knowledge of the client’s business Understanding the internal control | CHAPTER 6 PLANNING, KNOWLEDGE OF THE BUSINESS AND EVALUATING STRATEGIC BUSINESS RISK STEPS IN ACCEPTING AN AUDIT QUALITY CONTROL POLICIES AND CLIENT EVALUATION PROCEDURES Procedures carried out before accepting a new client or continuing with an existing client include: Reviewing financial information regarding the client Making inquiries of third parties such as solicitors and bankers Communicating with previous auditor Ensuring firm has technical expertise to carry out audit Ensuring accepting engagement will not conflict with the profession’s code of professional conduct COMMUNICATION WITH PREVIOUS AUDITOR Ensures interests of shareholders, incoming auditor and existing auditor are protected. Allows existing auditor to advise prospective auditor of any professional matters they should be aware of before accepting the engagement. Nominated auditor should request client’s permission to communicate with previous auditor. If client refuses permission, normally decline .