MGAC10H3 Lecture Notes - Lecture 2: Internal Control, Reconsideration Of A Motion, Financial Statement

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23 Feb 2015

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Cas 210 agreeing to terms of the audit engagement (acceptance and continuance) Recurring audits: the auditor does not have to send a new audit engagement letter or other written agreement each period. Acceptance of a change in the terms of the audit engagement: the auditor shall not agree to a change in the terms of the audit engagement where there is no reasonable justification for doing so. A change in circumstances that affects the entity"s requirements or a misunderstanding concerning the nature of the service originally requested may be considered a reasonable basis for requesting a change in the audit engagement. In contrast, a change may not be considered reasonable if it appears that the change relates to information that is incorrect, incomplete or otherwise unsatisfactory. An auditor who was engaged to perform an audit in accordance with cass may need to assess, in addition to the matters referred to in paragraphs any legal or contractual implications of the change.

Related Questions

The following statements relate to general principles or terms used in the audit of financial statements. Identify at least two errors from each of the following statements (a)-(e) and explain why these are errors and suggest corrections.

(a) Audit objective (4 marks)

The objective of an audit of financial statements is for auditors to make sure the financial statements give a true and correct view in all respects in accordance with an identified financial reporting framework and to ensure that they detect all fraud that may have taken place.

(b) HKSA (4 marks)

The Hong Kong Standards on Auditing specify exactly the necessary audit procedures that auditors should perform. For all private and listed companies, the Financial Reporting Council is responsible for investigating all deviations from the Hong Kong Standards on Auditing.

Auditors and their clients should agree on the terms of the engagement, which can be recorded either in the management representation letter or other suitable form of verbal contract. This letter is required to be reissued before the start of every audit, regardless of whether there are any changes to the terms.

(d) Audit opinion (4 marks)

The auditor was unable to attend and observe the inventory count of the companyâs subsidiary in Bangkok due to the recent riots over the current government. The inventory in Bangkok accounts for 80% of the groupâs total inventory. lnventory is a significant amount within current assets but is not considered significant in respect of total assets. The auditor decided the most appropriate audit opinion is an adverse opinion.

(e) Audit documentation (4 marks)

Since the client paid for the audit, the audit working papers are the property of the audit client and they can be used as substitutes for the company's accounting records in case the companyâs accounting records are destroyed in a fire.

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Indicate whether you agree or disagree with the following statements and explain your reasoning:

a) Rejean feels that an internal auditor that reports to the chief financial officer of the company can be as independent as an auditor that reports to the audit committee.

b) Angela discovered a very material overstatement in the financial statements. She felt the misstatement would have an impact on the decisions of users of the financial statements, and indicated to her audit senior that she would be including it as an âemphasis of matterâ paragraph in the audit report.

c) An auditor is responsible for the preparation and fair presentation of the financial statements in accordance with IFRS, and for such internal control as is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

d) An assurance engagement involves evaluation or measurement of subject matter against criteria.

Assignment 3: External and Internal Audit

Auditing is a very broad topic that covers all aspects of an organization. An audit not only examines the accuracy of financial statements but also examines the effectiveness of internal controls as well as the efficiency of overall operations of the organization. To accomplish the objectives of different types of audit within an organization, the audit function is broken down into the role of internal auditor and the external auditor.

In your role as a partner in the CPA firm Dewey, Wright, and Moore, review the following information.

Dewey, Wright, and Moore has just been approached by a new client, AV Imports and Exports, a company that trades goods with various countries. You are in charge of an audit engagement. To determine whether to take on the engagement, you proceed with the overall assessment of risk.

You meet with company management, the board of directors, and the audit committee, and begin communication with the previous audit firm. You also schedule a meeting with the internal auditors to learn more about their role and function within the organization.

In preparation for your scheduled meeting, research the external and internal audit function using your textbook, the Argosy University online library resources, and the Internet. Complete the following:

Compare the similarities between the responsibilities of the external and internal audit functions.

Compare the differences between the benefits of the two functions.

Make a recommendation to the management team based on your research

Present the comparisons in a chart. Include a 3-5 page report summarizing and explaining the chart as well as outlining how you think Dewey, Wright, and Moore can use the services of the internal auditors as part of the overall audit the firm would provide. Give reasons for your assertions and cite your sources.

Submit your chart and report in Word format. Utilize at least three resources in preparing your report. Apply APA standards for writing style to your work.

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MGAC10H3 Lecture Notes - Lecture 2: Internal Control, Reconsideration Of A Motion, Financial Statement

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