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Unformatted text preview: 1 AUDITING & ATTESTATION – 3 PLANNING & SUPERVISION TIP P IE ACDO “The auditor must adequately plan the work and must properly supervise any assistants” Audit committee of client’s board of directors is responsible for the selection and appointment of independent external auditor, and for reviewing the nature and scope of the engagement. Auditor has interaction with audit committee in planning phase. Sarbanes-Oxley Act: 1. Auditors report to and are overseen by the client’s audit committee. 2. Audit committee pre-approves all services provided by auditor. 3. Specified non-audit services are prohibited “Those charged with governance” = bear responsibility to oversee the obligations, financial reporting process, and strategic direction of entity. = “board of directors” and “audit committee” In new client relationship, new CPA is required to talk to old CPA. Client permission is needed to talk to Old CPA, otherwise it is scope limitation. Auditor then should consider whether or not to accept engagement. Before accepting, talk to old CPA regarding: 1. Information that might bear on management integrity 2. Disagreements with management over accounting principles, auditing procedures, or other similarly significant matters 3. Predecessor’s understanding as to the reasons for the change of auditors 4. Communication to management, the audit committee, and those charged with governance regarding fraud, illegal acts by client, and matters relating to internal control. After acceptance, inquire with the old CPA regarding: 1. Making specific inquiries about the audit (i.e. audit problems) 2. Reviewing the predecessor’s audit documentation (workpapers for evidence) If new CPA uncovers potential problems relating to old CPA’s audit, new CPA should ask client to arrange meeting involving new and old CPA and the client. If management refuses or successor auditor is not satisfied with the resolution, the new auditor should consider the implications and whether to resign. Preliminary Engagement Activities : After accepting, consider whether or not to continue the engagement 1. Assess the auditability of the client a. The integrity of management (increases the likelihood of FS misrepresentation) b. The availability and adequacy of the client’s accounting records (lack of records = scope limitation) c. The ability of the auditor to perform the audit after consideration of: i. The auditor’s knowledge of client’s industry and possible need for a spet ii. The auditor’s independence of the client iii. Scope limitations iv. Staffing needs of the engagement v. The auditor’s ability to comply fully with the Code of Professional Conduct 2. Client’s business risk: risk that events may occur that will negatively impact the company....
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- Spring '10