Scribd
Upload
61 views

Stephen f8 Question and Answer

The document discusses several factors related to conducting an audit for a new client. It outlines matters that should be included in the engagement letter such as scope of work, fees, timeline, and responsibilities of management and the auditor. It also lists sources an auditor can use to gain understanding of a new client, including prior financial statements and meeting with previous auditors. Risks associated with a new client include insufficient knowledge of their accounting policies and increased risk of errors in financial statements. The auditor should take steps to understand the client and apply professional skepticism.

Uploaded by

Stephen Francis
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
61 views

Stephen f8 Question and Answer

The document discusses several factors related to conducting an audit for a new client. It outlines matters that should be included in the engagement letter such as scope of work, fees, timeline, and responsibilities of management and the auditor. It also lists sources an auditor can use to gain understanding of a new client, including prior financial statements and meeting with previous auditors. Risks associated with a new client include insufficient knowledge of their accounting policies and increased risk of errors in financial statements. The auditor should take steps to understand the client and apply professional skepticism.

Uploaded by

Stephen Francis
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
You are on page 1/ 8

Vinus and Risk assessment

One factor is if the audit partner has been changed over the year- this will be needed to update
the managers about the new persons who will be working on the audit team

Another factor is when there is a changed in the audit fees due to the extensive work that
needs to be completed

Six matters what should be included in the engagement letter are:

1. The scope of the audit


2. The fee of the audit
3. How long the audit is expected to take
4. Who is the audit partner is who directly responsible
5. The auditors responsibility
6. The Management responsibility

Five sources to gained understanding of a new client are

1. Check the company’s website- the auditor will used this information to gain
understanding on the size and what products and services the entity trades in
2. Prior year financial statements this auditor will used this information to carry out
procedures about the company tend and pattern of business within their industry
3. Published financial statements- this will be used to give the audit a clear direction of
where the company is headed and its goals and future plans
4. Business magazines this may give the audit a idea of what cooperate responsibility the
entity has been a part of for example sponsorship of environmental events
5. The inter records such as the permanent and current file this will provide information
of all the internal rules and regulations in which the staff will have to follow
Corrections

Any indication of misunderstanding in the scope and objectives of the audit as this
misunderstanding would need to be clarified

Any revised or special terms of the audit engagement as these would require inclusion in the
engagement letter

A recent change in the size and nature of the entity the approached take by the auditor may
need to be changed to reflect the change in the entity and this should be clarified in the
engagement letter

A recent change of senior management or significant ownership -The letter is signed by a


director on behalf of those charged with governance if there was been any significant changes
in management it will be clarified here

A changed in legal or regulatory requirements- the engagement letter is contract hence if legal
or regulatory changes occur it can be out of date

Six matters what should be included in the engagement letter are:

1. The scope of the audit


2. The auditor responsibility
3. The management responsibility
4. Identification of financial framework for the preparation of the financial statements
5. Expected form and content of any report produced
6. The basis on which fees are computed and billing arrangement
7. Arrangements to make draft financial statement available and any other information
8. Arrangement concerning the involvement of internal auditors and other staff of the
entity

Understanding the entity


1. Prior year financial statements-Provides information in relation to the size of the
company as well as the key accounting policies, disclosures notes and whether the
audit opinion was modified or not
2. Discussion with previous auditors/ access to their files provides information on key
issues identified during the prior year audit as well as the audit approach
3. Prior year report to management it can provide information on how each of the key
accounting system operates and this will be used to identify areas of potential
control risk and helps determine the audit approach
4. Review board minutes- provides an overview of key issues which have arisen during
the year and how those charged with governance have address them
5. Current year budgets and management accounts- provides relevant financial
information for the year to date it will help the auditor during the planning stage for
preliminary analytical review identification

Sycamore
Maples & Co’s does not have any responsibility in relation to the prevention and
detection of fraud and error. This is the sole responsibility of management of the
company. Maples & co has the responsibility of gaining sufficient and appropriate
audit evidence in support of their opinion of the financial statements .

The auditor also have responsibility of obtaining sufficient and appropriate audit
evidence to gave a reasonable assurance on whether the financial statement
shows a true and fair view to the shareholders

The auditor also have the right to practice profession skepticism in carrying out
there work on the financial statement this means to have a questioning mind
about the information that in presented by management

In addition, if fraud is detected the auditor must report this to management and
those charged with governance

n
Audit risk Audit response
Sycamore previous finance director has The audit team must examine the draft
left the company. The new financial ' statements to verify if they are in
representative made not have sufficient compliance with relevant IAS’s .
experience in preparing the financial Throughout the audit the auditor must
statement in accordance with relevant careful attention to changes in
IAS’s . this therefore means that the accounting policies and judgments
financial statements may prepared made by the new director
incorrectly.

n
Audit risk Audit response

Directors reviewed the useful of assets- the The auditor may obtain a list of the asset register
audit risk is that these changes leads to an and compare the expected useful life with the
overall reduction of expensive in the financial new useful life determined and see if this
statements which leads to a increase in profit for reasonable
the company. This should be concerning since Discuss with directors the reasons for the
the directors will be given a bonus on the extension of these assets and the reduction in
company’s profits depreciation rates
Inventory is held in five warehouses and a full The auditor can obtain a sample of the issue
count will be held before year end and receipts and verify the amounts taken to the
movements will be adjusted for the years. balance left in inventory.
The audit risk is that the inventory valuation of The auditor can also be present at the stock
the inventory will be over/understated this is counts to ensure that these are carried out with
due to the inconsistent recording of movement the correct auditing procedures.
of inventory. This will lead to the financial The Audit team should increase the extent of
statement being misstated. inventory cut-off testing procedures
Damaged goods has been written down after a Discuss with management the basis in which this
fire at one of the warehouses. The risk of this scrap value was attributed
that there was the value the 0.2 M was not
correctly presented in the statement of financial
position.
Insurance claim for 0.7 has been submitted and Discuss with management whether any response
the proceeds included within profit and loss has been received from the insurance company
and review the related correspondence. If
virtually certain the treatment adopted is correct
The finance director has requested that the The team needs to maintain professional
audit commence earlier than normal as he skepticism be alert to increased risk of errors
wishes to report results earlier. The finance occurring
team will have less time to prepare the financial
information leading to an increase risk of errors
arising in the financial statement.
Recorder Cos

Audit Risk Audit Response


Recorder is a new client of this audit firm. The audit team should use all sources
There is a risk that Audit team may not have available to them to understand and given
sufficient knowledge on how this company time to do such the nature and transactions
accounting policies this may lead to an that the entity engaged in. the audit team
increase in detection risk should be experienced.
The audit team must also practice
professional skepticism in relation to the
judgments identified by management
Recorder co. is a new client of piano co. the Piano co. should ensure they have a suitable
audit team may not be familiar with the experienced team. Also adequate time
accounting policies transactions and balances should be allocated for the team members to
of recorder this may increase detection risk obtain an understanding of the company and
on the audit the risk of material misstatement
Recorder co purchased goods from supplier in The audit team means to review the audit
south Asia and these goods are shipped to the goods received note to invoices at the year
company’s warehouse. There is a risk that at end to confirm whether proper cut off
the yearend goods in transit will be recorded procedures were applied. The auditor should
in inventory. Only inventory that in present in also applied detailed cut off testing
the warehouse should be recorded in the procedures
inventory balance. If goods in transit are
recorded in the inventory balance the profit
will be understatement in the financial
statements.
Recorder purchases their goods from Asia The audit team should undertake detail cut
and the goods are in transit for two weeks. At off testing of goods in transit to ensure that
the year end there is a risk that cut off of the cut off is complete and accurate.
inventory, purchases and payables may not
be accurate. The company correctly accounts
for goods when they are received. Therefore
at the yearend only goods which have been
received into the warehouse should be
included in the inventory balance and
recognized
Recorder co does not undertake year end The audit team can obtain a sample of
counts but carries out monthly continuous inventory sheet and verify if a list of material
inventory counts. The audit risk after a items for existence in the inventory lines
particular inventory line would have been
counted a items could have been removed
and no record would have been taken. This
could lead to items which are not present in
the warehouse but will be accounted for
inventory. This will cause a understatement of
inventory
The company undertakes perpetual inventory The completeness of the continuous
counts at its central warehouse. Under such a (perpetual) inventory counts should be
system all inventory must be counted at least reviewed. In addition the level of
once a year with adjustments made to the adjustments made to inventory should be
inventory records considered to assess whether reliance should
Inventory could be under stated if this system be placed on inventory records at the year
counts are not completed and inventory end will be acceptable
records accurately updated for adjustments

You might also like

pFad - Phonifier reborn

Pfad - The Proxy pFad of © 2024 Garber Painting. All rights reserved.

Note: This service is not intended for secure transactions such as banking, social media, email, or purchasing. Use at your own risk. We assume no liability whatsoever for broken pages.


Alternative Proxies:

Alternative Proxy

pFad Proxy

pFad v3 Proxy

pFad v4 Proxy