(a). Elements of assurance engagements

• Tripartite relationship
  The Practitioner: This is the individual or firm providing the assurance service. They are responsible for performing the engagement according to relevant standards and procedures.
  The Responsible Party: This is the individual or organization responsible for the subject matter of the assurance engagement. For example, in a financial audit, the responsible party is usually the management of the organization being audited.
  The Intended Users: These are the individuals or groups who rely on the assurance report to make informed decisions. They could be investors, regulators or other stakeholders.
• Subject Matter
  The subject matter is the information or data that is being evaluated in the assurance engagement. It could be financial statements, compliance with regulations or the effectiveness of internal controls. The subject matter must be identifiable and measurable so that the practitioner can perform a proper evaluation.
• Suitable Criteria
  Suitable Criteria are the benchmarks or standards used to evaluate the subject matter. They provide a framework against which the subject matter is assessed. For example, in a financial audit, the criteria are generally the applicable accounting standards. The criteria must be suitable, relevant and agreed upon by the parties involved.
• Evidence:
  Evidence refers to the information and data collected by the practitioner to support their findings and conclusions. It is obtained through various methods, such as testing, observation, and inquiry. The quality and quantity of evidence are crucial in forming a reasonable basis for the assurance report.
• Assurance Report:
  This is the final output of the engagement, where the practitioner expresses their conclusion about the subject matter based on the evidence gathered. The report provides the assurance level, reasonable or limited that the information or processes being reviewed are free from material misstatement or in accordance with the criteria.
  (2 marks each for any 5 well-explain points = 10 marks)

(b). Factors to consider in client engagement acceptance
New or existing client acceptance procedures are essential steps that audit firms undertake before accepting a new client or continuance engagement. These procedures help ensure that the audit firm has sufficient information about the potential client and the engagement to determine if they can ethically and effectively undertake the audit. These acceptance procedures are designed to ensure that the audit firm can conduct the audit with integrity, independence, and competence while managing potential risks effectively. Here are five external audit acceptance procedures:

Understanding/Knowledge about the Client:
The audit firm evaluates the potential client’s background, reputation, and integrity. This involves gathering information about the client’s industry, financial stability, regulatory compliance history, and any legal or ethical issues that might affect the audit engagement. It’s crucial for the audit firm to assess whether the client’s values align with theirs and if there are any conflicts of interest.

Assessment of Independence:
Auditors must maintain independence from their clients to ensure impartiality and objectivity. Before accepting an engagement, the audit firm assesses any relationships, financial interests, or other factors that could impair their independence. The assessment includes reviewing relationships between the client and the audit firm’s personnel to ensure there are no conflicts of interest.

Evaluation of Competence and Resources:
The audit firm assesses whether it has the necessary competence, skills, resources, and experience to perform the audit effectively. This includes evaluating whether their staff has the appropriate technical knowledge and expertise in the client’s industry and the complexities of the client’s operations.

Understanding Terms of Engagement:
Before accepting the audit engagement, the audit firm and the client agree on the terms of the engagement, including the scope of work, responsibilities of both parties, and the expected timeline. This agreement is typically formalized in an engagement letter, which outlines the terms and conditions of the audit engagement.

Risk Assessment:
Auditors conduct a preliminary risk assessment of the client to understand potential risks associated with the audit engagement. This includes assessing financial risks, operational risks, legal risks, and other factors that could impact the audit process. The audit firm evaluates whether the client’s financial statements present significant risks of material misstatement and determines the audit approach and procedures accordingly.
(2 marks each for any 5 well explain points = 10 marks)