i) Main Actions to Establish Whether Preconditions for an Audit are Present:
The auditor should take the following actions to establish whether the preconditions for an audit are present:

1. Determine the Acceptability of the Financial Reporting Framework:
   • The auditor must ensure that the financial reporting framework to be applied in the preparation of the financial statements is acceptable.
2. Obtain Agreement from Management:
   • The auditor should obtain an agreement from management that it acknowledges and understands its responsibility for:
     • Preparing financial statements in accordance with the applicable financial reporting framework.
     • Implementing internal controls necessary to prepare financial statements that are free from material misstatement, whether due to fraud or error.
     • Providing the auditor with unrestricted access to all relevant information, including records, documents, and other matters, and access to employees for obtaining audit evidence.
3. Assess Limitations Imposed by Management:
   • The auditor must assess whether any limitations are placed on the scope of the auditor’s work. If management imposes a limitation that will lead to a disclaimer of opinion, the auditor should not accept the engagement, unless required by law.
4. Decline the Engagement if Preconditions are Not Met:
   • If the preconditions for an audit are not met, the auditor must discuss the matter with management. If no resolution is possible, the auditor should decline the engagement.

(6 points for 6 marks)

ii) Changing the Terms of an Audit Engagement (Recurring Audit):

1. Assessment of Need to Revise Terms:
   • The auditor must assess whether the circumstances of the recurring audit require a revision of the terms of the engagement.
2. Reasonable Justification for Change:
   • The auditor should not agree to a change in the terms of the engagement unless there is a reasonable justification for doing so. For example, a change in the financial reporting framework may warrant an update to the terms.
3. Change in Assurance Level:
   • If the auditor is asked to provide a lower level of assurance, such as moving from a full audit to a review engagement, the auditor should consider whether there is a reasonable justification for this change.
4. Withdraw if Conditions are Not Acceptable:
   • If the auditor is unable to agree to revised terms and management does not permit the original terms to continue, the auditor should withdraw from the engagement and assess whether they are required to report the circumstances to any relevant parties.

(4 points for 4 marks)

(Total: 10 marks)