Audit 1

The auditor shall agree the terms of the audit engagement with management or those charged with governance, as appropriate. The agreed terms shall be recorded in a/an?

• Engagement letter

• Letter of audit

• Management representation letter

• Confirmation letter

The following matters are generally included in an auditor's engagement letter, except:

• The factors to be considered in determining the overall materiality

• The fact that because of the test nature and other inherent limitations of internal control, there is an unavoidable risk that even some material misstatements may remain undiscovered.

• The scope of the audit

• management's responsibility for the financial statements.

The following are usually included in an auditor's engagement letter except:

• List of audit procedures to be used in inventoty observation

• The financial statements are the responsibility of the company's management

• A reference to PFRS

• A reference to PSAs

Which of the following statements would least likely appear in an auditor's engagement letter?

• our audit will be made with the objective of our expressing an opinion on the FS

• We remind you that the responsibility for the preparation of financial statements including adequate disclosure is that of the management of the entity.

• After performing our preliminary analytical procedures, we will discuss with you the other procedures we consider necessary to complete the engagement

• Our fees, which will be billed as work progresses, are based on the time required by the individuals assigned to the engagement plus out of pocket expenses

Which of the following factors most likely would cause an auditor to decline a new engagement ?

• Concluding that the entity's management probably lacks integrity

• Inability to perform preliminary analytical procedures before assessing control risks

• Inadequate understanding of the entity's internal control

• The close proximity to the end of the entity's reporting period.

Which of the following conditions most likely would pose the greatest risk in accepting a new audit engagement?

• There will be a client - imposed scope limitation

• The firm have to hire an expert in one audit area

• The client's financial reporting system has been in place for 10 years

• Staff will need to be reschedules to cover this new client

A predecessor withdrew from the engagement after discovering that a client's financial statements are materially misstated that it would not revise. If asked by the successor auditor about the termination of the engagement, the predecessor should:

• Suggest that the successor auditor should obtain the client's consent to discuss the reasons.

• State that the audit revealed material misstatement that the client would not revise

• Indicate that there was a misunderstanding

• Suggest that the successor audit ask the client

Which of the following is not correct regarding the communications between successor / incoming and predecessor/ previous auditors?

• The burden of initiating the communication rests with predecessor auditor

• The predecessor auditor may choose to provide a limited response to a successor auditor

• The burden of initiating the communication rests with the successor auditor

• The predecessor auditor must receive his/ her former client's permission prior to disclosing client information to the auditor.

Which of the following matters would an auditor most likely consider when establishing the scope of the audit?

• The expected audit coverage, including the number and locations of the entity's components to be included

• The entity's timetable for reporting, such as at interim and final stages

• The discussion with the entity's management concerning the expected communications on the status of an audit work throughout the engagement and the expected deliverables resulting from the audit procedures.

• Audit areas where there is a higher risk of material misstatements

In planning the stage of an audit engagement, the auditor is required to perform audit procedures to obtain an understanding of the entity and its environment, including its internal control. The procedures are callled

• Risk assessment procedures

• substantive tests

• tests of controls

• dual-purpose tests