AA tutorial 8

The audit engagement partner has asked you to prepare some information ready for the tender. Indicate which of the following would be included in the tender for the audit of Severn Co?

A. The proposed fee for the initial audit of Severn Co

• Include in tender

• Do not include in tender

The audit engagement partner has asked you to prepare some information ready for the tender. Indicate which of the following would be included in the tender for the audit of Severn Co?

B. A description of Rivers & Co, including the curriculum vitae of key staff likely to be assigned to the client

• Include in tender

• Do not include in tender

The audit engagement partner has asked you to prepare some information ready for the tender. Indicate which of the following would be included in the tender for the audit of Severn Co?

C. Overall level of materiality to be used in the audit

• Include in tender

• Do not include in tender

The audit engagement partner has asked you to prepare some information ready for the tender. Indicate which of the following would be included in the tender for the audit of Severn Co?

D. A summary of potential other services Rivers & Co could provide to Severn Co

• Include in tender

• Do not include in tender

You have identified a number of issues which should be considered prior to tendering for a new client. Given what you already know of Severn Co, which TWO of these are most important to consider further prior to tendering for the audit?

• The firm is independent of the potential client

• The firm has the appropriate resources to conduct the audit of the potential client

• The preconditions of audit will be met

• The outgoing auditors will give Rivers & Co access to working papers

You are reappraising whether it is appropriate for the firm to accept the engagement. Which of the following issues arising would cause Rivers & Co to decline the engagement?

• The engagement letter not being received by Rivers & Co

• Rivers & Co losing a major client meaning Severn's audit fee would represent 20% of annual firm income

• A reply from the outgoing auditors stating that they declined to seek reappointment to the audit of Severn Co due to a disagreement over accounting policies

• A request from Severn Co that the audit be carried out in March, when Rivers & Co already works at maximum capacity

Indicate which TWO of the following issues must be included in the engagement letter?

• Scope of the audit

• Responsibilities of management of Severn Co

• Timetable for the provision of accounting information by Severn Co

• Fees and billing arrangements

Before accepting the audit of Severn Co, Rivers & Co should _________________. Once the audit has been accepted, then Rivers & Co should begin to______________________ .

• Obtain references concerning directors

• Submit the letter of engagement
  

• Appoint a quality control reviewer
  

• Determine audit materiality levels
  

Which TWO of the following actions should NAB & Co take regarding the potential confidentiality issue?

• Inform the audit committees of both Goofy and Mickey of the potential conflict of interest and obtain their consent to act for both parties

• Use separate audit teams for each audit with a common independent review partner to determine whether confidentiality has been maintained

• Draw up confidentiality agreements to be signed by the board of directors of Goofy and Mickey

• Prevent unauthorised physical access to the information relating to both company audits

Indicate familiarity threats to independence.

• Audit engagement partner has been in the position for seven years
  

• Audit engagement partner's daughter works for Goofy
  

• Audit engagement partner's daughter's bonus would be in the form of shares
  

• 5% bonus offered if audit is completed three weeks earlier than last year