问答题
3.
问答题
(a) In agreeing the terms of an audit engagement, the auditor is required to agree the basis on which the audit is to be carried out. This involves establishing whether the preconditions for an audit are present and confirming that there is a common understanding between the auditor and management of the terms of the engagement.
Required:
Describe the process the auditor should undertake to assess whether the PRECONDITIONS for an audit are present. (3 marks)
【正确答案】ISA 210 Agreeing the Terms of Audit Engagements provides guidance to auditors on the steps they should take in accepting a new audit or continuing on an existing audit engagement. It sets out a number of processes that the auditor should perform including agreeing whether the preconditions are present, agreement of audit terms in an engagement letter, recurring audits and changes in engagement terms.
To assess whether the preconditions for an audit are present the auditor must determine whether the financial reporting framework to be applied in the preparation of the financial statements is acceptable. In considering this the auditor should assess the nature of the entity, the nature and purpose of the financial statements and whether law or regulations prescribes the applicable reporting framework.
In addition they must obtain the agreement of management that it acknowledges and understands its responsibility for the following:
【答案解析】
问答题
(b) List FOUR examples of matters the auditor may consider when obtaining an understanding of the entity. (2 marks)
【正确答案】Matters to consider in obtaining an understanding of the entity:
– The market and its competition
– Legislation and regulation
– Regulatory framework
– Ownership of the entity
– Nature of products/services and markets
– Location of production facilities and factories
– Key customers and suppliers
– Capital investment activities
– Accounting policies and industry specific guidance
– Financing structure
– Significant changes in the entity on prior years.
【答案解析】
问答题
(c) You are the audit senior of White & Co and are planning the audit of Redsmith Co for the year ended 30 September 2010. The company produces printers and has been a client of your firm for two years; your audit manager has already had a planning meeting with the finance director. He has provided you with the following notes of his meeting and financial statement extracts.
Redsmith’s management were disappointed with the 2009 results and so in 2010 undertook a number of strategies to improve the trading results. This included the introduction of a generous sales-related bonus scheme for their salesmen and a high profile advertising campaign. In addition, as market conditions are difficult for their customers, they have extended the credit period given to them.
The finance director of Redsmith has reviewed the inventory valuation policy and has included additional overheads incurred this year as he considers them to be production related. He is happy with the 2010 results and feels that they are a good reflection of the improved trading levels.
【正确答案】
【答案解析】