Chapter 5 - Chapter 05 - Audit Planning and Types of Audit...

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Chapter 05 - Audit Planning and Types of Audit Tests 5-1 CHAPTER 5 AUDIT PLANNING AND TYPES OF AUDIT TESTS Answers to Multiple-Choice Questions 5-16 d 5-23 A 5-17 d 5-24 A 5-18 a 5-25 C 5-19 c 5-26 A 5-20 b 5-27 C 5-21 d 5-28 B 5-22 d Solutions to Problems 5-29 a. Prior to acceptance of the engagement, Tish & Field should have communicated with the predecessor auditor regarding: Facts that might bear on the integrity of management. Disagreements with management concerning accounting principles, auditing procedures, or other significant matters. The predecessor's understanding about the reason for the change. Any other information that may be of assistance in determining whether to accept the engagement. b. The additional procedures Tish & Field should perform before accepting the engagement include the following: 1. Obtain and review available financial information (annual reports, interim financial statements, income tax returns, etc.). 2. Inquire of third parties about any information concerning the integrity of the prospective client and its management. (Such inquiries should be directed to the prospective client’s bankers and attorneys, credit agencies, and other members of the business community who may have such knowledge.) 3. Consider whether the prospective client has any circumstances that will require special attention or that may represent unusual business or audit risks, such as litigation or going-concern problems. 4. Determine if the firm is independent of the client and able to provide the desired service. 5. Determine if the firm has the necessary technical skills and knowledge of the industry to complete the engagement. 6. Determine if acceptance of the client would violate any applicable regulatory agency requirements or the Code of Professional Conduct. c. The form and content of engagement letters may vary, but they would generally contain information regarding:
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Chapter 05 - Audit Planning and Types of Audit Tests 5-2 The objective of the audit. The estimated completion date. Management's responsibility for the financial statements. The scope of the audit. Other communication of the results of the engagement. The fact that because of the test nature and other inherent limitations of an audit, together with the inherent limitations of any system of internal control, there is an unavoidable risk that even some material misstatement may remain undiscovered. Access to whatever records, documentation, and other information may be requested in connection with the audit. Arrangements with respect to client assistance in the performance of the audit engagement. Expectation of receiving from management written confirmation concerning representations made in connection with the audit. Notification of any changes in the original arrangements that might be necessitated
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Chapter 5 - Chapter 05 - Audit Planning and Types of Audit...

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