ACCAspace ACCA P7. Provided by. ACCA Research Institute ACCA 课程研究学院. Advanced Audit and Assurance(AAA) 高级审计与鉴证业务 ACCA Lecturer: Iris Nie

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1 ACCAspace Provided by ACCA Research Institute ACCA 课程研究学院 ACCA P7 Advanced Audit and Assurance(AAA) 高级审计与鉴证业务 ACCA Lecturer: Iris Nie

2 Syllabus Obtaining and accepting professional appointments 1 Tendering 2 Acceptance 2

3 You are an audit manager in Weston & Co which is an international firm of Chartered Certified Accountants with branches in many countries and which offers a range of audit and assurance services to its clients. Your responsibilities include reviewing ethical matters which arise with audit clients, and dealing with approaches from prospective audit clients. 3

4 The management of Jones Co has invited Weston & Co to submit an audit proposal (tender document) for their consideration. Jones Co was established only two years ago, but has grown rapidly, and this will be the first year that an audit is required. In previous years a limited assurance review was performed on its financial statements by an unrelated audit firm. 4

5 The company specialises in the recruitment of medical personnel and some of its start up funding was raised from a venture capital company. There are plans for the company to open branches overseas to help recruit personnel from foreign countries. 5

6 Jones Co has one full-time accountant who uses an off-the-shelf accounting package to record transactions and to prepare financial information. The company has a financial year ending 31 March

7 The following comment was made by Bentley Jones, the company s founder and owner-manager, in relation to the audit proposal and potential audit fee: I am looking for a firm of auditors who will give me a competitive audit fee. I am hoping that the fee will be quite low, as I am willing to pay more for services that I consider more beneficial to the business, such as strategic advice. 7

8 I would like the audit fee to be linked to Jones Co s success in expanding overseas as a result of the audit firm s advice. Hopefully the audit will not be too disruptive and I would like it completed within four months of the year end. 8

9 Required: (i) Explain the specific matters to be included in the audit proposal (tender document), other than those relating to the audit fee; and (8 marks) (ii) Assuming that Weston & Co is appointed to provide the audit service to Jones Co, discuss the issues to be considered by the audit firm in determining a fee for the audit including any ethical matters raised.(6 marks) 9

10 Outline of Weston & Co A brief outline of the audit firm, including a description of different services offered, and an outline of the firm s international locations. This will be important to Jones Co given that it wishes to expand into overseas markets and will be looking for an audit firm with experience in different countries. The document should also outline the range of services which Weston & Co can provide, and any specialism which the firm has in auditing recruitment companies. 10

11 Identify the audit requirements of Jones Co There should be an outline of the statutory audit requirement in the country in which Jones Co is incorporated, to confirm that the company is now at the size which necessitates a full audit of the financial statements. As this is the first time an audit is required, it will be important to outline the regulatory framework and the duties of auditors and of management in relation to the audit requirement. 11

12 Audit approach A description of the proposed audit approach, outlining the stages of the audit process and the audit methodology used by the firm should be given. The description should state that the audit will be conducted in accordance with ISA requirements. 12

13 Weston & Co should emphasise the need for thorough testing of opening balances and comparatives given that this is the first year that the financial statements will be audited. The risk-based nature of the audit methodology should be explained, and that it will involve an assessment of accounting systems and internal controls. Controls may not be good given the limited resources of the accounting function, so the audit approach is likely to be substantive in nature. 13

14 有效 信赖 内控存在 + 被执行 Test of control 无效 不信赖 Risk assessment Operating effectiveness Existence? Carry out? 内控不存在 or 未被执行 Substantive procedures 14

15 The audit firm may at this stage wish to explain that while the audit should not be disruptive, the audit team will require some input from Jones Co s employees, especially the accountant, and other personnel including Bentley may need to make themselves available to respond to the audit firm s requests for information and to discuss matters relating to the audit. 15

16 The proposal should outline the various communications which will be made with those charged with governance during the audit process, and highlight the value added from such communications, for example, recommendations on any control deficiencies. 16

17 Deadlines The audit firm should clarify the timescale to be used for the audit. Bentley has requested that the audit is completed within four months of the year end. This seems to be reasonable; it should be possible for the audit of a relatively small company with simple transactions and a full-time accountant to be completed within that timeframe. 17

18 Quality control and ethics Weston & Co should clarify its adherence to IESBA s Code of Ethics for Professional Accountants, and to International Standards on Quality Control. This should provide assurance that the audit firm will provide an unbiased and credible audit report. This may be important for the venture capitalists who will wish to gain assurance on the financial information which they are provided with in relation to their investment. 18

19 Additional non-audit and assurance services The audit proposal should describe the various non-audit and assurance related services which Weston & Co would be able to offer Jones Co. These may include, for example, business consultancy and corporate finance advice on overseas expansion and obtaining any necessary additional funding to help the planned overseas expansion. 19

20 This discussion should clearly state and emphasis that the provision of such services is subject to meeting ethical requirements and will be completely separate from the audit service. 20

21 Conclusion The firm should demonstrate that it has understood the unique features and requirements of the business and has considered how best it can meet those. 21

22 Conclusion The tender documents often needs to contain: An assessment of the requirements of the client The fee and details of how it has been calculated An outline of how the firm proposes to address those requirements for the fee The assumptions made, deadlines or availability of information The proposed approach to the engagement An outline of the firm and the staff involved 22

23 Acceptance Specific issues that should be considered: Does the firm have the necessary technical competence to perform the work? Does the firm have sufficient resources to perform the work? Are there any ethical or independence issues if the firm decides to proceed with the work? 23

24 Acceptance Has the firm considered the risks associated with new clients, such as money laundering or the potential for them becoming a Politically Exposed Person? Such people (known as PEPs) are usually in the public eye and as such become a target for extortion, blackmails or corruption----this makes any association with them a possible threat to a firm s reputation. 24

25 Acceptance Has the auditor obtained references for the entity s directors? Has the auditor obtained professional clearance from the outgoing auditors? Have the terms of engagement been discussed and agreed prior to accepting the appointment? 25

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