Auditors should only accept a new audit engagement, or continue an existing audit engagement if the 'preconditions for an audit' required by ISA 210 Agreeing the terms of audit engagements are present. Show
ISA 210 requires the auditor to:
If the preconditions for an audit are not present, the auditor should discuss the matter with management, and should not accept the engagement unless required to do so by law or regulation. ProceduresIf offered an audit role, the auditor should:
Engagement lettersThe engagement letter will be sent before the audit. It specifies the nature of the contract between the audit firm and the client and minimises the risk of any misunderstanding of the auditor's role. It should be reviewed every year to ensure that it is up to date but does not need to be reissued every year unless there are changes to the terms of the engagement. The auditor must issue a new engagement letter if the scope or context of the assignment changes after initial appointment. ISA 210 requires the auditor to consider whether there is a need to remind the entity of the existing terms of the audit engagement for recurring audits and many firms choose to send a new letter every year, to emphasise its importance to clients. The contents of the engagement letterThe contents of a letter of engagement for audit services are listed in ISA 210 Agreeing the Terms of Audit Engagements. They should include the following: The following auditing standard is not the current version and does not reflect any amendments effective on or after December 31, 2016. The current version of the auditing standards can be found here. Auditing Standard No. 7Engagement Quality Review Supersedes SECPS Requirements of Membership § 1000.08(f).Effective Date: For engagement quality reviews of audits and interim reviews for fiscal years beginning on or after December 15, 2009Final Rule: PCAOB Release 2009-004Summary Table of ContentsApplicability of Standard[The following paragraph is effective for audits of fiscal years ending on or after June 1, 2014. See PCAOB Release No. 2013-007. For audits of fiscal years ending before June 1, 2014, click here.] 1. An engagement quality review and concurring approval of issuance are required for the following engagements conducted pursuant to the standards of the Public Company Accounting Oversight Board ("PCAOB"): (a) an audit engagement; (b) a review interim financial information; and (c) an attestation engagement performed pursuant to Attestation Standard No. 1, Examination Engagements Regarding Compliance Reports of Brokers and Dealers, or Attestation Standard No. 2, Review Engagements Regarding Exemption Reports of Brokers and Dealers. Objective2. The objective of the engagement quality reviewer is to perform an evaluation of the significant judgments made by the engagement team and the related conclusions reached in forming the overall conclusion on the engagement and in preparing the engagement report, if a report is to be issued, in order to determine whether to provide concurring approval of issuance. Qualifications of an Engagement Quality Reviewer3. The engagement quality reviewer must be an associated person of a registered public accounting firm. An engagement quality reviewer from the firm that issues the engagement report (or communicates an engagement conclusion, if no report is issued) must be a partner or another individual in an equivalent position. The engagement quality reviewer may also be an individual from outside the firm. 4. As described below, an engagement quality reviewer must have competence, independence, integrity, and objectivity.
Competence5. The engagement quality reviewer must possess the level of knowledge and competence related to accounting, auditing, and financial reporting required to serve as the engagement partner on the engagement under review. Independence , Integrity, and Objectivity6. The engagement quality reviewer must be independent of the company, perform the engagement quality review with integrity, and maintain objectivity in performing the review.
7. To maintain objectivity, the engagement quality reviewer and others who assist the reviewer should not make decisions on behalf of the engagement team or assume any of the responsibilities of the engagement team. The engagement partner remains responsible for the engagement and its performance, notwithstanding the involvement of the engagement quality reviewer and others who assist the reviewer. 8. The person who served as the engagement partner during either of the two audits preceding the audit subject to the engagement quality review may not be the engagement quality reviewer. Registered firms that qualify for the exemption under Rule 2-01(c)(6)(ii) of Regulation S-X, 17 C.F.R. § 210.2-01(c)(6)(ii), are exempt from the requirement in this paragraph. Engagement Quality Review for an AuditEngagement Quality Review Process9. In an audit engagement, the engagement quality reviewer should evaluate the significant judgments made by the engagement team and the related conclusions reached in forming the overall conclusion on the engagement and in preparing the engagement report. To evaluate such judgments and conclusions, the engagement quality reviewer should, to the extent necessary to satisfy the requirements of paragraphs 10 and 11: (1) hold discussions with the engagement partner and other members of the engagement team, and (2) review documentation. 10. In an audit, the engagement quality reviewer should:
Evaluation of Engagement Documentation11. In an audit, the engagement quality reviewer should evaluate whether the engagement documentation that he or she reviewed when performing the procedures required by paragraph 10 -
Concurring Approval of Issuance12. In an audit, the engagement quality reviewer may provide concurring approval of issuance only if, after performing with due professional care the review required by this standard, he or she is not aware of a significant engagement deficiency.
13. In an audit, the firm may grant permission to the client to use the engagement report only after the engagement quality reviewer provides concurring approval of issuance. Engagement Quality Review for a Review of Interim Financial InformationEngagement Quality Review Process14. In an engagement to review interim financial information, the engagement quality reviewer should evaluate the significant judgments made by the engagement team and the related conclusions reached in forming the overall conclusion on the engagement and in preparing the engagement report, if a report is to be issued. To evaluate such judgments and conclusions, the engagement quality reviewer should, to the extent necessary to satisfy the requirements of paragraphs 15 and 16: (1) hold discussions with the engagement partner and other members of the engagement team, and (2) review documentation. 15. In a review of interim financial information, the engagement quality reviewer should:
Evaluation of Engagement Documentation16. In a review of interim financial information, the engagement quality reviewer should evaluate whether the engagement documentation that he or she reviewed when performing the procedures required by paragraph 15 supports the conclusions reached by the engagement team with respect to the matters reviewed. Concurring Approval of Issuance17. In a review of interim financial information, the engagement quality reviewer may provide concurring approval of issuance only if, after performing with due professional care the review required by this standard, he or she is not aware of a significant engagement deficiency.
.18 In a review of interim financial information, the firm may grant permission to the client to use the engagement report (or communicate an engagement conclusion to its client, if no report is issued) only after the engagement quality reviewer provides concurring approval of issuance. [The following paragraph is effective for audits of fiscal years ending on or after June 1, 2014. See PCAOB Release No. 2013-007.] Engagement Quality Review for an Attestation Engagement Performed Pursuant to Attestation Standard No. 1, Examination Engagements Regarding Compliance Reports of Brokers and Dealers, or Attestation Standard No. 2, Review Engagements Regarding Exemption Reports of Brokers and Dealers18A. In an attestation engagement performed pursuant to Attestation Standard No. 1, Examination Engagements Regarding Compliance Reports of Brokers and Dealers, or Attestation Standard No. 2, Review Engagements Regarding Exemption Reports of Brokers and Dealers, the engagement quality reviewer should evaluate the significant judgments made by the engagement team and the related conclusions reached in forming the overall conclusion on the attestation engagement and in preparing the engagement report. To evaluate such judgments and conclusions, the engagement quality reviewer should, taking into account the procedures performed in the engagement quality review of the financial statement audit, (1) hold discussions with the engagement partner and other members of the engagement team, (2) read the engagement report and the document containing management's assertions, and (3) review the engagement completion document and other relevant documentation. [The following paragraph is effective for audits of fiscal years ending on or after June 1, 2014; see PCAOB Release No. 2013-007.] 18B. In an attestation engagement performed pursuant to Attestation Standard No. 1, Examination Engagements Regarding Compliance Reports of Brokers and Dealers, or Attestation Standard No. 2, Review Engagements Regarding Exemption Reports of Brokers and Dealers, the engagement quality reviewer may provide concurring approval of issuance only if, after performing with due professional care the review required by this standard, he or she is not aware of a significant engagement deficiency. [The following note is effective for audits of fiscal years ending on or after June 1, 2014; see PCAOB Release No. 2013-007.]
[The following paragraph is effective for audits of fiscal years ending on or after June 1, 2014; see PCAOB Release No. 2013-007.] 18C. In an attestation engagement performed pursuant to Attestation Standard No. 1, Examination Engagements Regarding Compliance Reports of Brokers and Dealers, or Attestation Standard No. 2, Review Engagements Regarding Exemption Reports of Brokers and Dealers, the firm may grant permission to the client to use the engagement report only after the engagement quality reviewer provides concurring approval of issuance. Documentation of an Engagement Quality Review19. Documentation of an engagement quality review should contain sufficient information to enable an experienced auditor, having no previous connection with the engagement, to understand the procedures performed by the engagement quality reviewer, and others who assisted the reviewer, to comply with the provisions of this standard, including information that identifies:
20. Documentation of an engagement quality review should be included in the engagement documentation. 21. The requirements related to retention of and subsequent changes to audit documentation in PCAOB Auditing Standard No. 3, Audit Documentation, apply with respect to the documentation of the engagement quality review. In the context of an audit, "engagement report" refers to the audit report (or reports if, in an integrated audit, the auditor issues separate reports on the financial statements and internal control over financial reporting). In the context of an engagement to review interim financial information, the term refers to the report on interim financial information. An engagement report might not be issued in connection with a review of interim financial information. See paragraph .03 of AU section ("sec.") 722, Interim Financial Information. An outside reviewer who is not already associated with a registered public accounting firm would become associated with the firm issuing the report if he or she (rather than, or in addition to, his or her firm or other employer): (1) receives compensation from the firm issuing the report for performing the review or (2) performs the review as agent for the firm issuing the report. See PCAOB Rule 1001(p)(i) for the definition of an associated person of a registered public accounting firm. [The following footnote is effective for audits of fiscal years beginning on or after December 15, 2010. See PCAOB Release No. 2010-004. For audits of fiscal years beginning before December 15, 2010, click here.] The term "engagement partner" has the same meaning as the "practitioner-in-charge of an engagement" in PCAOB interim quality control standard QC sec. 40, The Personnel Management Element of a Firm's System of Quality Control-Competencies Required by a Practitioner-in-Charge of an Attest Engagement . QC sec. 40 describes the competencies required of a practitioner-in-charge of an attest engagement. Paragraph 13 of PCAOB Auditing Standard No. 3, Audit Documentation, requires the auditor to identify all significant findings or issues in an engagement completion document. See paragraphs .04-.06 of AU sec. 550, Other Information in Documents Containing Audited Financial Statements; AU sec. 711, Filings Under Federal Securities Statutes. See AU sec. 230, Due Professional Care in the Performance of Work. Concurring approval of issuance by the engagement quality reviewer also is required when reissuance of an engagement report requires the auditor to update his or her procedures for subsequent events. In that case, the engagement quality reviewer should update the engagement quality review by addressing those matters related to the subsequent events procedures. Under what circumstances the auditor should not accept an audit engagement?If management or those charged with governance impose a limitation on the scope of the auditor's work in the terms of a proposed audit engagement such that the auditor believes the limitation will result in the auditor disclaiming an opinion on the financial statements, the auditor shall not accept such a limited ...
Which situation would likely make an account not accept a new audit engagement?Auditor shall not accept an audit engagement if the management imposes any limitation on the scope which will result in the auditor disclaiming an opinion on the financial statements, unless required by law or regulation to do so.
What are the issues to consider before accepting an audit engagement?Points to consider before accepting the Audit. Background information.. Eligibility.. Management assessment.. Investigation of industry involvement and risk factor.. Which of the following factors most likely would cause an auditor not to accept?Which of the following factors most likely would cause an auditor not to accept a new audit engagement? An inadequate understanding of the entity's internal controls.
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