Leek ec ten bea App Uh Peeigyman lites CHArT IRS OVERVIEW OF THE AUDITS PROCESS AMD PREINGAGEMENT ACTIVITIES ‘r0RM (rnseew. ‘Te chaylar Gcnccon the tabeion A abt, ie grins as he ateret naira mbar me mereng me aging, te soamarnent LEANN OmsEcTIVES. Aes sah agp, ya ter We 5 Desire at sn woe 2. Enumerate and tornn the tare hase fw mai 4. Enumerate and expan pre engagemens series 4dr te ora concerts aceon a changing su AupIT {in audit 2 Senate races T a rang Hd dence regatig sertons about teonomc scion and eves 22 ‘Seerain te degree of comespondence between tase sseons and ‘stablhed ertera and communcating the tenis terest (Americas ‘counting Aescston). AUDIT PROCESS “The ait process she equence of Geren sce VON Ha “This procs normaly incues theo PHASE DESCRIPTION Tiveenggeneat | Ths plas wil vege + decson fom Ge aioe wheter or not f acept a new clone or contnue | |consip wth a ein one” The proces would | {equreevunion of he aor guaiRSoon ut a0 {Ge icp of mangement nd sudtably of the lens fancal sateen | Primary objective: T minnie the Hatha of ng | ssc cent whote magenta Aad panning ives te Sevtpeen sr ere ut states pln and Sud progam Te soe ‘il sal btn more dtaled Know about te ‘Sent buses ad sty nade oes the ‘towactonsand evens aflcg te tana sateen | [soting preliminary materty and ait rik ant 1 hud anning |chapter 1 = Overview othe Aust Poss 3 re-engagement Activities Frain sent oH a PONTE Gis) ams Twos rea ge performed “Gonsderaton of ‘neoral controls “evidence ‘gathering (Subseantive testing) econ teaal cons involves We ty ag aide internal controls whether can prevem, atantion rect material misstatements nating, Primary bj fnteral contro i extent of audit procedures tobe ib Fe he formation obtained in aud laining ag PaeE cron of lateral canto the ator perfor, sepeagave test to detect material misstatements a Tati tn conding. whether the ents nan) Petenes are, presented fairy in accordance wih ‘ancl reporting. standards. Substantive procedres oul either be anayal procedures oF testo details ‘ransactions and balances “Tis phase willalways be performed bythe auditor Primary ‘objective: To ascertain. the degree of orerpendence. bebveen the financial statements Srepared by clen’s management and the fina! Feporting framework. jective To establish 2 basis or reliance yy determining the ature, Gnng formed. ‘Completing the ‘avait ‘Wrapup procedures are performed condasions reached) re reviewed and an overall opinion frmed during tis pase Primary objective: To assist dhe audltor in assesiy whether the conclusion reached is consistent wih evidence gathered. ‘Sissaance ofthe Th this phase, the adr drafs and tases the aol ‘uditreport | report which stats the auditor's opinion regarding tie falmes ofthe rancal satement. Primary objective: To communicate the results of he fvorkeftheauslorta various ended users T-Pos-audit Aer completion of the audit engagement te audit performs procedures to determine compliance wit ‘ually controls and wo identify aeas fr improve the curentand urureauditengaements. Primary objective: To assess and evaluate the aul th aut services delivered by the engagement team. 2 chapter 1- Overview of the Aust Process and Preengagement Actives PRE-ENGAGEMENT “Acceptance ofan engagement In making a decision whether to acceptor reject an engagement the auditor should perform the following 4. Evaluate preconditions for an audit Preconditions ofan audit i the use by management of an acceptable financal reporting Famework in the preparation of the financial Statements and the agreement of management and where appropriate, those charged with governance to the premise en which an audit is conducted 2. Bvaluaeaustailty ofthe prospective client 4 Investigate the integrity ofthe dent’ management trough inguiy to appropriate parties or communication with the predecessor audio. Matters tobe discussed with predecessor autor Include the following: (nD) 2 The predecessors understanding as tothe Reasons for change i autos: by Information that might bear onthe Integrity ofthe management and Disagreements between the predecessor autor and management sto accounting principles, suiting procedures, Note: Everytime communication Is made to parties other than the Silent the auditor sal seek permission from the client and document ‘he tems discussed 4 Evaluate compliance with ethical requirements, including Independence Relevant par the Code of Bis cludes Part 1, Part 3 and Part 4a '. Bvahat ofthe Arm's ability to serve the prospective cent 6 Obtain a preliminary knowledge ofthe clients business and industry to fetermine whether the auditor has the degre of competence required bythe engagement 1. Aree on the ters ofthe engagement and prepare an engagement leter Continuance ofan Engagement ‘To ensure the audit hrs continuing compliance with the continuance procedure, the auditor needs to consider significant matters that have risen during the earrent or previous engagements and their implications forcontinuing the rations.and Pre-engagement Activ _chager 1 Overview fhe Aut Process an Pe-eOgASETENE Ati, lng Terms of ADICEaBABEER ang ne Tes clem salar o te terms of eMEENEN, ced tents would need to be recorded in an audit eTGaGeMeRt ltr ‘ther suitable form of contract Tes in the ut hat te tren engagement leer preferably before the commencement ofthe engage tobelp avoid misunderstandings with respect fo the engagement, Ty. ‘engagement eter documents and confirms: 2 Auditor's acceptance ofthe engagement 1 Objective and sope ofthe audit Extent of autor’ responsibilities tothe client 4. Form ofany reports Contents ofengagement letter ‘The form and conten of audit engagement letters may vary FOF each clin, but they would generally include reference te ‘The presence of aut rsk Unrestricted access to whatever records ‘The financial reporting framework used Objective ofthe adie ‘The form of any reports or other communication Managements rexponsibilty The seope ofthe alt ‘The auditor may also wish to include in he letter: ‘Basis in which fees are computed and any biling arrangements ‘Expectation of receiving representation letter € Acknowledgment of managementof terms of agreement 4. Arrangements regarding the planning ofthe audit Description of anyother leters or reports ‘When relevant, the following points could alo be made: Arrangements concerning the Involvement of ther auditors and experts in some aspects ofthe aut; Arrangements concerning the involvement of internal auitors and other staff Arrangements tobe made with the predecessor auditor, any inthe ‘case intl audit engagement: ‘Any restriction ofthe auditors lability when such possiblity exis ‘Arference any ute agreements between the autor ante popanse sS ‘Audit of Components ‘When the auditor of 2 parent entity is also the auditor of its subsiins branch, oF division (component), the factors that influence the deci 4 (Chapter 1~ Overview of the Aut Process and Pre-engagement Activities whether to send a separate engagement letter tothe component ince the following ‘+ Who appoint the component autor ‘Legal requirements in elation toaualt appointments; {Degree of ownership by paren 1 Whether separate auditor's reports tobe issued on the component and 1+ Degre ofindependence ofthe component's management fom the patent entty, Recurring Audits (On recurring audits, the suitor shoul consider whether circumstances ‘require the terms ofthe engagement to he revised and whether there isa ‘ed to remind the cient of the existing terms ofthe engagement. The ‘hditor may decide not ta send anew engagement eter each period, However, the following actors may make & appropiate to send a new eter ‘Any indication thatthe cent misunderstand the objective and scope ofthe audit ‘Any revised or special terms of the engagement ‘Arecent change of tap level management or board of iectors. Asignificant change in ownership A significant change in nature oF ize ofthe client's business. A change in legal or regulatory requirements ‘A change in financial reporting famework adopted nthe preparation ofthe financial statements. ‘+ Achange nother reporting requirements Acceptance ofa Change in Engagement «Sp perme e oldegagonent 2 Sip rceng fh deere pt ves fo] ” hehe non enganeent veer ee {Lisa repr sed on ene geet ae {Contin nga aa ngs ors" the ‘ectCchoper 1 Overview ofthe Au Process and Pe-en jement Activities SS Centrino rap — ra oe ey | EA restriction on the scope of the engagement (wheter | Imposed by management or caused by circumstances) 7 hange related to information tat is incorect, ncaplete or otherwise nsztisa The auditor ir unable to obalnsuficent appropriate avait dence regarding assertions Chapter 1 - Overview of the Au Process and Pre-engagerent Activities (CHAPTER 1: REVIEW QUESTIONS - THEORETICAL 1 Which ofthe flowing iran incorrect phrase regarding auditing? 2.” Alling sasystematc proces. 13 Auditing subjectively obtains and evaluates evidence Auditing evahites evidence regarding assertions. {4 Auditing communicates osu itarested ures 2. Sttbe folowing phases in proper order EC Prengagement V-Planing Ti, tmtenal Controle Vi Post AtditResponsibiities Ii Evidence Gathering VIL Reporting IV. Completing the Adit 2 LILILIVY, VE Leta vv © LN, iuinw, Lv a ‘3 Which ofthe following procedures sno required to be performed by the 4 Rakassesment procedures Substnave procedures © Testrofcontl Analytical procedures 4 Wich ofthe fotowing procedures shouldbe performed by the auditor Porto sariga ieloud? 1 Pefrm procedures reprding the acceptance fhe ent reationsh andthe specie suai enggeent _ ‘Gommunkate wih he previous auditor, where there hasbeen a change ofaudtors in complnge wth relevant tial requirement. = Tony & tnty © Bott ana Nether rt 5 Gantmatono rectal or ak aac performed dung wht "Studying and evhtingitermal controls phase i Subnav tstng phase ™ © Preengagement pase 4 Comping supose 6 Which ofthe follwing would not be a cnsdeation of CPA fm in Aehng wheter to seip ew len? The cents aac bay 8 The cent’ relaons thts previous CPA frm. & Theclentstaning nthe bins commun. 44 The chen’ probity of actievag an unqualfed opinion. 7and Pre-engagement Activ chapter 1 ~ Overview of the Aud Process and Pr-enGOBETENE AC, 7. Management’ integrity alsa ofthe owing sks exe 2 Busines se B andiersk © Fancal reporting bere ; rz ng cpa al en yh rami ep etptncy i ct ta or me hm eeu Wars Scene Ee ca penemratn Er earincin nena corn vemennn > erect rats Kira eee eee eetenas ieebirsoomrtnymr ia Sn = Le, faa ‘eee 10. Before accepting an ait engagement, a successor audltor should make Speci inguries ofthe pradecesa audio regarding 2 he predecessor's eralation of matters of continuing aeeouning siguiance ', Disigrement which the predecessor had with the client concersig _udling procedures and secoating principles The dogres of cooperation the predecesor received concerning the Ing ofthe lent legal counsel 4 The predeceso’'s assessment of inberen rik and judgment abot rmateralty 11, I the prospective cent refuses to permit the predecessor to respon limits the predecessor's response the suecessor shoud 2 Contin to ark the predecessor ator questions on fats that mil ‘ear onthe ntegety of management ‘Accept the engagement but only afer an equitable increase int" rofssional ee on 2 uw ter - Overview of the Aude Procaes and Pre-engagement Activities (Inquire as tothe resons and consider the impleatons in deciding winter to acep the engagement 4. ese dlecaimer of option because the limited response of the predecessor autor constitute significant cope iio 1 pemission rom the client o discuss ts afaire with he proposed sur Istniedby the lent, the predecessor sutr should 2 Keepstentf the dena! B Bisclove the fc thatthe permission to disclosure is dened bythe lene Disease adequately to raposed auto all noncompliance made by 4. Sekegal advice before responding tothe proposed auditor Wh ofthe folowing factors would most ike cause a CPA to decide not toateepta new aut engapemen? the CPAs lack of understanding ofthe prospective client’ internal autos éomputerassisted audit etnigues. Management droped of it respantaiy to maintain an adequate Interml contol ensronment The CPAs Inaliy t determine whether relate. party transactions ‘were consummated on ts equvaentt arms length transactions 4 Managements refusal to perm the CPA to perform subszantve ws brlore the yearend In deciding whether to accep new aut ent an autor considers 1 "Pare ofthe Cade of Ethics Wi, Part ofthe Code of Ethes HL Pare ofthe Code of Ethics IV, Pare othe Cade o Bhs Landi only © and ony 4 tithana Lrimatey the decison about whether o nat an autor independent rmustbe made by 1 Autor 1 Gents management © Buble 4. Aulecommitee With regard to independenc, which ofthe folowing statements is ore? 2 Aue engagements provide assrance to wie range of pote ses ont bth nde nd an independence ppenrance ae of artilar importance. 1. Only the engagement partes required bythe Code of Ethie to be Independent fom he assurance cents °chapter ot tne ava ress and Pre-engagerent Acti Te nase of aud statements he Code of BIS reg re ety independent tent a Monde al taterments the Code of ru Imeae of ud pendent from their assurance 4 om the a ironing procedures required by hee ffthe report. 17, Which ofthe folowing, tors he ment upto the isnt ngagement UP i sos ty wold nen 3 ey, Wh oe a ay ofan ens acl seme? ert ecient cone CEES 2 eet trond ay womactos & Recent cecum sem Be Sduny ote aceon ve frm tv atone formation ht would Davee 120 A fe a aye ariel are. ASONS A SoBe wound te oii 2 ude ou tao and pesos 0 OE Pans wy pane Pa 1 dr nthe lations 2 Vrs rm te eneeement ee ddaimerofopmon 18 coring P4230, he or anh ets a8 ee acer Tuc peda wold needa be recoded na) ce rite perma sean fe WO PE & Clemstpeenaon eer © Snpuementener comtreser 20. wich tte flowing attire cre? Seen sor nthe cst shal prec on the ems te arte eh an agement maybe nthe om of st engage Ieltor eerste acne ‘Statement 2: Even in those countries where the scope of the aut tablished by lav, an engagement eter maybe informative forthe cw. Only statement tisearret 1 Only statement 2isearect © Bothstatements are corect Both statementsare incorrect 21, Engagementleter that docaente and confirms the avltors acceptance theenpagement woud normaly be sent the cent 42 Before the commencement of te engagement 1. Before the auditor reportis issued After the audit reports issued {4 Atthe end ofthe fieldwork 0 ‘chapter 1 ~ Overview ofthe Aust Process and Preengagement Actes a 2 25 6 2. ‘An engagement eta isbest described as 1 Rieter from the company to te aulors specifying managements ‘expectations for completion othe aut ona timely bass and the ees. by. Alster from the suitors to company management speclying that ‘managements responsible for the franc statements, and the {hditor wil tse un opinion on the inanc statoments. e Aetter fom the autre to company management tat specifies the Fesponsbiles ofboth te company andthe audtors in completing the uditand he ining forts completion. 44 eter from the Board of Director? audit commie to the autor that iniates the auditor hasbeen engage to perform the audit and ‘he es tobe ple ‘An engagement ter prepared with he meres) of f Theaualer only The public © Theclentonty {1 Boththe clentand the autor Engagement ters are widely used in practice for 2 Profesional engagements of al pes 'bAmurance engagements oy Related series ony 44 Aus oly Which ofthe following matters i generally Included in an auditor's engagement? PP The factors to be considered in sting preliminary judgments about maternity bb Managements vicarious Uisbity for Uegal acts commited by its employees Management’ responsibilty for teeny’ complance with ws and regulon 4 The autor responsi to seareh for significant internal contol tienes Arrangements concerning wth whieh af he folowing are lest key tobe incded nthe engagement eter? Fees and bling 1. Apredecessor autor © CPhinvestment in clint secuites {Other services tobe provided sadn tothe ait Anaudit engagement eter least ikl nea 2k reference tothe inherent Hmitations ofan aut that there isan Cnavoidable isk that some material misstatements may remain tinivowered by. Description fan eters o eports that the autor expects to submit tome det nre-engagement Atv chapter 1 ~ Overview of te Aust Process a Actives thatthe auditor nes _ denieation of spect aude procedures tat tM a Se cc cpa neyo an es rem i hate aa sere in deciding whether C0 send 3 S338 MEARE ey ete tot eitacess ‘c._ Number of reports to be prepared du ; verona Se er emmeescoce! 2 hl a al cnt wy sem et aren ee ener ears Me SEE hs Beet porated meget ete ey era ee a Nace! Se eer acces hee ge eee eer 2 cone te oa ae SE et Coa stn 2 Seni na ca eae eed ies cn eee een wane eto SE ee Se tT a pane ere re ae pean cae! re nat eS pele oe el ee eee eae reaper ring the peakaualt season famed onthe component 2 “chapter 1 Overview ofthe Audi Process and Pre-engagement Actives 432. Which ofthe flowing statements is/are corec? Statement 1: Where the terme of the engagement ae changed, the autor fndthe cnt should agree on the nee ers Statement 2: The suitor should not apre toa change of engagement ‘when hres no reasonable ustiation fr doing so Statement 3: the auditor ie unable to agree to 2 change of the {engagement and snot permite to cotinue the original engagement. the Iter should withdraw and consider whether there Is any obligation ‘ther contractual or others, to reparto oter partes, suchas the board Gtdvecors or shareholders, the clcummances necessitating the withdraws 2 Only oe statementiseorect 1 Onlytw statements ae correct © Aleaterments are correct {4 Alstatements are ncorret 33. Ifa change in the type of engagement rom higher to lower af assurance not stile, the ada shoul 2 thro from he engagement 1 Qualify thereporton the original engagement © Goninue wih the revised engagement but make exit reference shout the original engagement 14 Refuse to apres to managereat’s equeston te change of engagement And continu with the ginal engagement ‘5, One ofthe fa things that te autor wi do afer accepting new cents 2 Contact the cent attorney to discover legal obligations 1 Communicate withthe predecessor aula. Sty the lent’ nara onl structs 4 Tourthe cents tales. 35. company’s external auditor expresses an ungualfied opinion a result tthe at of the company’s nunc statements, readers ofthe audit Feporesnassune at 1th company i Bean sound and the financial statements are Theor! autor found aed tera eons efecuve {&_Alimtriadnagreetents beeen th company and the zur about the applintion of scouning principles were resolved In the "Sisson fhe external aur. 3