Pre Engagement Procedures 1

1. The following are considered by a CPA firm in deciding whether to accept a new client, except

• 1. The client’s financial ability

• 1. The client’s relations with its previous CPA firm

• 1. The client’s standing in the business community

• The client’s probability of achieving an unqualified opinion.

1. To emphasize auditor independence from management, many corporations follow the practice of

• 1. Appointing a partner of the CPA firm conducting the audit to the corporation’s audit committee.

• 1. Establishing a policy of discouraging social contract between employees of the corporation and the staff of the independent auditor.

• Requesting that a representative of the independent auditor be on hand at the annual stockholder’s meeting.

• 1. Having the independent auditor report to an audit committee of outside members of the board of directors.

Where the client is changing auditors, PSA requires communication between the predecessor and successor auditors. The burden of initiating the communication rests with:

• The client

• The predecessor Auditor

• 1. The Philippine SEC

• 1. The successor Auditor

  
  

1. Before accepting an audit engagement, a successor auditor should make specific inquiries of the predecessor auditor regarding

• 1. Disagreements which the predecessor had with the client concerning auditing procedures and accounting principles.

• The predecessor’s evaluation of matters of continuing accounting significance.

• 1. The degree of cooperation the predecessor received concerning the inquiry of the client’s legal counsel

• 1. The predecessor’s assessment of inherent risk and judgments about materiality.

1. If the prospective client refuses to permit the predecessor to respond or limits the predecessor’s response, the successor should:

• 1. Continue to ask the predecessor auditor questions on facts that might bear on the integrity of management.

• 1. Accept the engagement but only after an equitable increase in the professional fee.

• 1. Issue a disclaimer of opinion because the limited response of the predecessor auditor constitutes a significant scope limitation.

• Inquire as to the reasons and consider the implications in deciding whether to accept the engagemen

1. After client acceptance, the terms of the engagement are agreed by the auditor with the client. The objective and scope of the audit and the extent of the auditor’s responsibilities to the client are best documented in:

• Independent auditor’s report

• Audit engagement letter

• 1. Client’s representation letter

• 1.  Audit program

1. The primary purpose of the engagement letter is to:

• 1. Remind management that the primary responsibility for the FS rests with management.

• 1. Provide a written record of the agreement with the client as to the services to be provided.

• 1. Provide a starting point for the auditor’s preparation of the preliminary audit program.

• 1. Satisfy the requirements of the CPA’s liability insurance policy.

1. Which of the following is least likely to be included in an audit engagement letter?

• 1. Identification of specific audit procedures that the auditor needs to undertake.

• 1. Description of any letters or reports that the auditor expects to submit to the client.

• 1. A reference to the inherent limitations of an audit that there is an unavoidable risk that some material misstatements may remain undiscovered.

• 1. Basis on which fees are computed and any billing arrangements.

1. Which of the following factors need to be considered in deciding whether to send a separate engagement letter to a component (in the case of group audits)?

• 1. Who appoint the auditor of the component

• 1. Legal requirements

• 1. Whether a separate audit report is to be issued on the component

• 1. All of the above are considered.

  
  

1. In which of the following situations will there be a need to send a new letter for recurring engagements?

• 1. Revisions or special terms of the engagement

• 1. Significant change in nature or size of the client’s business.

• Indications of misunderstanding of the objective and scope of the audit.

• 1. All of the above are situations that may cause the auditor to send a new letter.