AA – May 2021 – L2 – Q5a – Planning and Approach for Audit and Assurance Engagements

State preconditions for audit engagements and circumstances under which an auditor may refuse an engagement

Question

ISA 210 deals with the Auditor’s responsibility in agreeing to the terms of the audit engagement with management and, where appropriate, those charged with governance. This includes establishing certain preconditions for an audit and responsibilities that rest with management and, where appropriate, those charged with governance.

Required:
i) What THREE (3) preconditions must be established before an audit engagement is accepted? (6 marks)

ii) Under what TWO (2) circumstances will an auditor refuse an engagement? (4 marks)

Answer

i) Preconditions for an Audit Engagement:
The following preconditions must be established before an audit engagement is accepted:

Management must acknowledge its responsibility for the preparation of the financial statements in accordance with an acceptable financial reporting framework (e.g., IFRS or IPSAS).
Management must acknowledge its responsibility for implementing internal controls necessary to prevent and detect material misstatements.
Management must agree to provide the Auditor with all relevant and requested information, as well as unrestricted access to personnel and records necessary to perform the audit.
(3 points @ 2 marks each = 6 marks)

ii) Circumstances for Refusing an Engagement:
An auditor may refuse an engagement under the following circumstances:

When there is a limitation on scope imposed by management, making it impossible for the Auditor to express an opinion on the financial statements.
When the financial reporting framework used by the entity is unacceptable or not in accordance with applicable standards.
(2 points @ 2 marks each = 4 marks)

Tags: Audit Engagement, Audit Refusal, ISA 210, Management Responsibility, Preconditions
Level: Level 2

Topic: Planning and Approach for Audit and Assurance Engagements
Series: MAY 2021

Uploader: Dotse