2.1 Overview of the Audit Process Introduction and Pre Engagement Activities
Summary
TLDRThis video script delves into the financial statements audit process, emphasizing a risk-based approach with three key phases: risk assessment, risk response, and conclusion and reporting. It starts with pre-engagement procedures, discussing client acceptance and continuance, and the importance of evaluating management's integrity. The script also highlights the necessity of an engagement letter to define the audit's scope and terms, and touches on considerations for recurring audits and changes in engagement terms.
Takeaways
- 📘 The script introduces a module focused on the financial statements audit process, emphasizing a deeper dive into the subject beyond the initial overview.
- 🔍 It highlights the importance of the risk-based audit approach, which is central to the financial statement audit process and consists of three phases: risk assessment, risk response, and conclusion and reporting.
- 🤔 The video discusses the pre-engagement phase, which includes client acceptance and continuance, and stresses the need for auditors to evaluate their competence, ethical requirements, and the client's auditability.
- 👤 The importance of assessing management's integrity is underscored, as it is critical to avoid complications during the audit engagement and to ensure a successful audit process.
- 📑 The necessity of an engagement letter is explained, which serves as a formal written agreement between the auditor and the client, outlining the terms of the engagement and minimizing misunderstandings.
- 💼 The script covers the contents of an engagement letter, which include the audit's objective, management's responsibilities, the financial reporting framework, and the scope of the audit, among other details.
- 🔄 The discussion touches on the conditions under which a new engagement letter may be required, such as changes in senior management, the nature or size of the client's business, or the financial reporting framework.
- 🚫 It advises on how to handle situations where a client requests a change in the terms of engagement, suggesting that auditors should only agree to changes if the reasons are justifiable and refuse or withdraw if they suspect the client is trying to avoid an unfavorable audit opinion.
- 👥 The video script also addresses the considerations for auditing components, such as subsidiaries or divisions, and the factors that may influence whether a separate engagement letter is needed for them.
- ⏰ The presenter acknowledges feedback about the length of previous videos and commits to keeping the discussion within 25 to 30 minutes per segment to enhance understanding and retention of concepts.
- 📈 The next phase of discussion will focus on audit planning, including topics like materiality, which is a significant aspect of the audit process and will be covered in subsequent videos.
Q & A
What is the main focus of the module discussed in the video script?
-The main focus of the module is to provide an overview of the financial statements audit process, including client acceptance, audit planning, and the risk-based audit approach.
What is the significance of the risk-based audit approach in the financial statement audit process?
-The risk-based audit approach is significant as it guides the auditor through three distinct phases: risk assessment, risk response, and conclusion and reporting, ensuring a structured and comprehensive audit.
What are the three phases of the risk-based audit approach?
-The three phases of the risk-based audit approach are risk assessment, risk response, and conclusion and reporting.
What does pre-engagement procedures involve in the context of auditing?
-Pre-engagement procedures involve client acceptance and continuance, evaluating the auditor's competence, ethical requirements including independence, and the capabilities to perform the audit engagement.
Why is evaluating the integrity of a client's management important in the auditing process?
-Evaluating the integrity of a client's management is crucial to avoid complications during the audit engagement and to ensure the reliability and credibility of the audit findings.
What is the purpose of an engagement letter in an audit engagement?
-An engagement letter serves as a formal written agreement between the auditor and the client, outlining the objectives, scope, responsibilities, and terms of the audit engagement to minimize misunderstandings and legal liabilities.
What factors determine whether a separate engagement letter should be sent to the components of an organization?
-Factors determining the need for a separate engagement letter for components include who appoints the auditor, whether a separate audit report is issued, legal requirements, the extent of work performed by other auditors, and the degree of ownership and independence of the component's management.
Why might an auditor consider discontinuing an engagement with an existing client?
-An auditor might consider discontinuing an engagement with an existing client due to evidence of management lacking integrity, difficulty in working with client personnel, inability to negotiate an acceptable fee increase, or if the client requires specialized services that the audit firm cannot provide.
What is the significance of discussing the company's management with the predecessor auditor?
-Discussing the company's management with the predecessor auditor is significant for understanding the reasons for the change in auditors, assessing management's integrity, and identifying potential disagreements that may impact the audit.
How can an auditor assess the auditability of a prospective client?
-An auditor can assess the auditability of a prospective client by evaluating the adequacy of accounting records and the quality of the client's internal controls, which are the responsibilities of the prospective client.
Outlines
📘 Introduction to the Financial Statements Audit Process
Christine, the auditing conversation partner, reintroduces herself and announces the focus of the module: an in-depth exploration of the financial statements audit process. She highlights the shift from a general overview of auditing to a detailed examination of the process, including client acceptance, audit planning, supervision, and monitoring. Acknowledging feedback on video length, Christine commits to keeping discussions concise, aiming for 25 to 30 minutes per segment. The module's agenda is outlined, emphasizing the risk-based audit approach with its three phases: risk assessment, risk response, and conclusion and reporting.
🔍 Pre-Engagement Procedures and Client Acceptance
The second paragraph delves into pre-engagement procedures, which include client acceptance and continuance. It discusses the importance of evaluating the auditor's competence, ethical requirements, including independence, and the auditor's capabilities in terms of time and resources. Christine addresses hypothetical scenarios where an auditor might lack industry-specific experience but still possesses the foundational knowledge to perform an audit. She stresses the necessity of understanding the client's industry and business, evaluating the auditability of the prospective client, and assessing management's integrity. The process of communicating with predecessor auditors using the mnemonic 'RID' (Reasons for the change, Integrity, and Disagreements) is also covered.
🤔 Evaluating Client Management's Integrity and Auditability
Christine continues the discussion on the importance of evaluating a client's management integrity and the auditability of the client's operations. She suggests methods such as reviewing financial statements, communicating with the predecessor auditor, and engaging professionals for background checks. The paragraph also covers the considerations for client continuance, including reasons for discontinuing an engagement, such as evidence of management lacking integrity or difficulty in working with client personnel. The decision to continue or accept an engagement hinges on reaching an agreement with the client on the terms of the engagement.
📑 The Significance of Engagement Letters in Auditing
The fourth paragraph emphasizes the role of engagement letters in formalizing the agreement between the auditor and the client. It outlines the contents of an engagement letter, which include the audit's objective, management's responsibilities, the financial reporting framework, the scope of the audit, and the form of reports. The paragraph also addresses the circumstances under which a new engagement letter is necessary, such as changes in senior management, the nature or size of the client's business, or the financial reporting framework. The importance of minimizing misunderstandings and outlining the parameters of the audit is highlighted.
🔄 Handling Changes in the Terms of Engagement
Christine discusses the circumstances that may prompt changes in the terms of engagement, such as changes in client needs or misunderstandings. She advises on how to handle such changes, emphasizing the importance of evaluating the reason behind the client's request. If the reason is justifiable, the auditor should agree to the change and proceed with the new engagement without mentioning the old one. However, if the reason is not justifiable, the auditor should continue with the original engagement or withdraw if the client refuses. The paragraph also touches on the need for a new engagement letter when there are significant changes in the client's business or reporting framework.
🚀 Wrapping Up Pre-Engagement and Looking Ahead to Audit Planning
In the final paragraph, Christine concludes the discussion on pre-engagement procedures and looks forward to the next phase, which will cover audit planning and materiality. She encourages viewers to take notes to capture the concepts discussed and hints at the exciting content to come in the next video. The paragraph serves as a transition, summarizing the completion of the first phase and preparing the audience for the in-depth discussion on audit planning.
Mindmap
Keywords
💡Auditing
💡Financial Statements Audit Process
💡Risk-Based Audit Approach
💡Pre-Engagement Procedures
💡Client Acceptance
💡Ethical Requirements
💡Management's Integrity
💡Engagement Letter
💡Audit Planning
💡Materiality
💡Recurring Audits
Highlights
Introduction to the financial statements audit process, emphasizing the transition from an overview to a deeper dive.
Explanation of the risk-based audit approach as the core of the financial statement audit process.
Discussion of the three distinct phases of the risk-based audit approach: risk assessment, risk response, and conclusion and reporting.
Importance of pre-engagement procedures, including client acceptance and continuance, and their role in the audit process.
Criteria for auditor competence, ethical requirements, and independence in accepting or continuing client engagements.
Assessment of the auditor's capabilities and the auditability of the prospective client, including the adequacy of accounting records and internal controls.
Emphasis on evaluating management's integrity as a critical factor in client acceptance and continuance decisions.
Process of communicating with predecessor auditors using the mnemonic RID (Reasons for the change, Integrity, Disagreements) to assess client management.
Strategies for conducting background investigations on prospective clients to ensure their integrity and auditability.
The role of engagement letters as formal contracts between the auditor and client, outlining the terms and expectations of the audit engagement.
Contents of an engagement letter, including audit objectives, management responsibilities, and the scope of the audit.
Considerations for sending separate engagement letters to components of an organization, such as subsidiaries or divisions.
Guidelines for recurring audits and when to issue a new engagement letter for existing clients.
Factors influencing the decision to agree to or refuse changes in the terms of an audit engagement, including client's motives and justifications.
Implications of changing the level of assurance from an audit to a review and the auditor's response to such requests.
The importance of managing client expectations and minimizing misunderstandings through clear communication in engagement letters.
Strategies for handling situations where the client requests a change in engagement to avoid a potential modification of the audit opinion.
Conclusion of the pre-engagement phase and a preview of the next phase, which will cover audit planning.
Transcripts
hi there I'm back it's me again
Christine your auditing thei
conversation partner did you miss me now
if you have been paying close attention
to the previous videos that we have had
particularly the first module on the
introduction to audit Insurance then you
might have notied that we mentioned
something about how we gave an overview
to auditing but not really the audit
process yet well surprise surprise in
this module we are finally going to give
an overview of the fin financial
statements audit process so this will no
longer be simply skimming the surface as
to what auditing is but we're finally
going to take a deeper dive into what
the financial statement audits
statements audit process is like so if
you will it's kind of like taking our
bolang Crystal our crystal ball and
taking a peek into your future as
external Auditors and what do you expect
to do when you finally perform an
external FS audit now truth be told if
we were to discuss each phase in the
overview then we would have if we were
going to discuss it thoroughly then we
would have already effectively discussed
the entirety of the auditing Theory
syllabus but then of course that would
be a bit too overwhelming so to help
things to help make things more
digestible we're going to give a special
focus on client acceptance audit
planning supervision and monitoring now
before we jump into our discussion I
also do listen to your feed feedback and
one of the things that I have received
one of the feedbacks that I have
received is that the lengthier videos
like the previous one we had which ran
for about an hour aren't really as
effective as we would have hoped it to
be so therefore we're going to do
something different in this module for
each of the segments we are having for
this module we're trying to I am going
to try and limit our discussion to 25 to
30 minutes hopefully that will be better
and that will assist you better in terms
of the ret of the concepts so are you
excited because I sure am let's take a
look at how we're going to divide our
discussion for this modu so these
essentially are the topics we're going
to give an overview of the fs audit and
of course we're going to give the
overview of the audit process client
acceptance and audit planning would go
into the overview of the audit process
together with pre-engagement procedures
scope and purposes of audit planning now
honestly audit planning takes up a bulk
of the discussion and our conversation
here and then finally cap it off with
Direction supervision and review so let
us start with the overview of the audit
process now whenever we talk about the
fs audit process we think of these
phases and yes there is a reason why the
phases are arranged that way we arranged
the phases this way because now might be
a good time to tell you about the
risk-based audit approach our FS audit
process Embraces what we call the
risk-based based audit approach and at
the Hallmark at the core rather of a
risk-based audit approach are actually
three distinct phases how many distinct
phases three the first distinct phase is
risk assessment and when we perform risk
assessment that is where pre-engagement
procedures audit planning and of course
the risk assessment procedures would
belong too now once the auditor has
assessed the risks meaning to say
identified and evaluated the risks then
the auditor will of course respond
respond to the risk right once we have
evaluated something we don't just sit
back relax and enjoy but we respond to
the risk and finally after the process
of responding where audit evidence
Gathering procedures will play the main
character role then the auditor will of
course complete the audit issue the
audit report and perform post audit
responsibilities this is the phase we
were refer to as conclusion and
Reporting so essentially the three
phases of the risk-based audit approach
is risk assessment risk response and
conclusion and Reporting and all of
these steps or phases fall distinctly
into each of the three distinct phases
as well of the risk-based audit approach
so where do we begin well they do say
let's start at the very beginning it's a
very good place to start so we get to
talk about pre-engagement procedures
first when we think about pre-engagement
procedures as the term would suggest pre
that means it happens before the actual
engagement we essentially look at client
acceptance and when we say client
acceptance then this means either
accepting a new client or it could be
accepting an old client an existing
client for a new engagement now this
section will also talk about client
continuance whereby we think about an
existing client with the same engagement
and as to whether we will continue or
not now whenever the auditor decides
whether to accept or to continue a
client the auditor must evaluate and
look at the number of things such as for
example the auditor must evaluate his or
her competence we must remember that we
are not allowed to accept engagements
where we are not competent to perform
them okay another is ethical
requirements and ethical requirements
will of course be anchored deeply into
the code of ethics and it is at this
point where we get to remind ourselves
of the requisite for Independence we
have to examine the possible
relationship we'll be having with this
client and if there will be no
violations to the ethical requirements
most especially that on Independence the
auditor must also look into the
capabilities of the auditor meaning to
say does he or she have the time and the
resources to finish the said engagement
so at the onset the auditor does a
self-reflection
now there are often situations that are
being asked particularly if this were
you know a classroom underg discussion
and perhaps your auditing Theory teacher
might might have asked you about what if
there is a prospective client that has
visited you in your office now the
client wants to get you for you know an
external FS audit engagement but then it
just so happened that this client is
working on an industry that you have
never had any experience exp erience
before let's just say for example the
client is a school it's an educational
institution and so far all of your
existing clients are into the
merchandising buy and sell industry and
you have never audited a school or an
educational institution or something
similar ever in the past you have never
had an experience auditing a school in
the past and then most likely the
question would be could you accept the
engagement would you consider accept the
audit engagement considering that the
industry where this prospective client
belongs to is something that you have
never experienced yet now particularly
looking into the requirement of the
auditor to evaluate its competence the
question now is will you accept the
engagement or can you accept the
engagement now the long and short answer
to that
is yes you may and then some students
may ask but miss does it not mean that I
am not competent to perform the audit
because I have never experienced
auditing that industry ever now take
note that what is required for you is to
have that competence to perform the
audit by virtue of you being a certified
public accountant and by virtue of you
being in public practice are you
competent to perform the audit
engagement the answer of course is yes
yes you are you already have the basic
competence to perform the auditing
engagement but then miss how about the
industry I have never audited that
industry ever in the past and so
therefore I am not yet competent well
guys the good news is you could always
acquire that the important thing is the
very Foundation do you know how to
conduct an audit are you qualified to
conduct an audit if your answer to that
is yes then you can just acquire the
necessary understanding of the client's
industry and business later on but at
the end of the day the long and short
answer to it is yes you may accept such
engagement provided of course there are
no violations of the ethical
requirements and you have the
capabilities to perform the audit
engagement okay but our evaluation does
not just stop there the auditor should
also evaluate the auditability of the
prospective client do you remember in
our discussion regards an appropriate
subject matter we said that for a
subject matter to be appropriate it must
be identifiable it must be measurable
and it must be testable in fact one of
the elements of an assurance engagement
is for you to be able to get sufficient
and appropriate evidence so you need to
determine can I audit this client is the
prospective client auditable and what do
we look at when we decide whether it's
aable or not well two things determine
the adequacy of accounting records and
the quality of the client's internal
controls both of which by the way are
the responsibility of the prospective
client but in order for us to perform an
audit we need to know are there records
does the client have a system of
internal control in place if the client
gets a check mark for both then we may
consider accepting the client and or the
engagement and then most importantly we
need to evaluate Management's
Integrity I cannot stress this enough do
not associate yourselves with clients
who lack Integrity because then things
will become very complicated once you're
already in the engagement once you have
already signed the contract and then at
that moment you realize uhoh this client
has questionable Integrity it's going to
get more complicated so from the very
start filter out clients with
questionable
Integrity assess evaluate client
Management's integrity and how do you do
that sometimes it's easier said than
done right but then how do you do that
well you can review the company's
financial statements you can discuss the
company's manage management with the
predecessor auditor or those which we
call the ex auditor now as a successor
auditor if you're the auditor is about
to receive that client or to receive
that engagement do you know that it is
your responsibility to initiate
communication with the ex auditor or the
predecessor auditor but then of course
because we are all bound by the ethical
requirement of confidentiality this
communication must receive the blessing
of the client first so as the incoming
auditor or the new auditor you will have
to ask permission from the client okay
you will have to inform the client that
you're going to communicate with the ex
auditor or the predecessor auditor if
the client gives the go signal then you
will be free to talk to each other okay
but if the client does not give the go
signal well wouldn't that be considered
as a red flag why wouldn't the client
let you talk to the ex right but then
let's think about this conversation
imagine yourselves maybe in a coffee
shop or having lunch together with the
ex auditor what are the things you're
going to talk about now would that be an
awkward conversation I don't know but
what are the things you're going to talk
about well essentially three things and
we summarize these three things by the
pneumonic rid r i d rid essentially we
want to know why were you gotten rid of
okay so R stands for reasons for the
change you have to ask why things didn't
work out for them because the reason why
things didn't work out for them might
very well be the reason why things will
not work out for you in the future what
do we mean by this one say for example
the reason for the change has something
to do with a disagreement regards how to
apply an accounting standard whether or
not you are the auditor then the
accounting standards remain the same
right so if they disagreed with that
then most likely they will also disagree
with you on that because we talking
about the accounting standards and
accounting standards do not differ from
auditor to auditor okay so then this
gives you an idea of why things didn't
work out for them of course there are a
lot of valid reasons why there has to be
a parting of the ways right it's
possible that there might be
disagreements with regards to fees or
maybe the client needs services that the
ex- auditor cannot provide and so
therefore they're looking for another
one but at the end of the day you need
to know what are the reasons for the
change you also need to ask letter I I
stands for integrity you have to ask
about the Integrity of management and
letter D for rid letter D would stand
for disagreements that they may have
with management okay so these are the
things you're going to talk about with
the predecessor or the ex auditor you
may also want to discuss the company's
management with members of the financial
Community like maybe creditors Bank
institutions or some other stakeholder
olders that might give you an insight as
to whether management has Integrity
consider engaging professionals or
investigators to evaluate the principles
associated with the prospective client I
happen to know that some audit firms do
this one it's kind of like a background
investigation into a prospective client
and obtain credit reports when deemed
necessary so all of these things
hopefully will give you an idea as to
whether the client's management has
integ
we have to be on the lookout for example
for you know negative um news or perhaps
too aggressive overly aggressive uh
stand with regards how to apply gray
areas in the accounting principles that
would also give you an idea as to the
Integrity of management now for client
continuance like I mentioned there might
be valid reasons why you wish to
discontinue an engagement with an
existing client such as for example of
course if there is evidence indicating
that a client's management May lack
Integrity then best for you to exit Okay
so difficulty in working with client
Personnel we have to remember as well
that part of Management's responsibility
is to ensure that we are able to perform
our audit and so if management somehow
or if the Personnel of that client
somehow seems to be actively working
against you it may also be a reason for
you to dis discontinue the engagement or
the inability to negotiate an acceptable
increase in the fee yes that is a valid
reason for you to discontinue the
engagement or if the client needs
specialized services that the current
audit firm is unable or unwilling to
provide these are reasons for why
clients discontinue or Auditors
discontinue with uh the engagement no of
their existing clients now once the
auditor has made the decision to
continue or to accept then the auditor
and the client must reach an agreement
okay the terms of the engagement should
be reached or an agreement with regards
the terms of the engagement should be
reached with the client preferably
through the auditor about the
Professional Services desired and an
engagement letter is of course prepared
now an engagement letter stands as like
the contract between the auditor and the
prospective client and this is to be
sent preferably before the commencement
of the engagement so like what we have
mentioned it's a formal written
agreement between the CPA firm and the
client for the conduct of audit and
related Services it's a written contract
because it's a letter so it must be in
writing it's a written contract between
the auditor and the client there is a
need to utilize engagement letters in
order to minimize understandings because
sometimes the client may have a
different idea as to what an audit
entails from that what the auditor
expects no or what the auditor can
actually offer so therefore the engage
ment letter can provide no this Avenue
to minimize misunderstandings this would
also alert the client as to the purpose
of the engagement and the role of the
external auditor and it will help
minimize legal liabilities for services
that were neither contracted for nor
perform so the engagement letter will
contain the details of the engagement
and will attempt to outline important
things relating to the scope of the
engagement what are the parameters with
which the auditor will conduct the said
engagement so the these are the contents
of an engagement letter they are quite a
lot so don't get too overwhelmed but
it's important that we are familiar with
them because sometimes the multiple
choice questions would ask something
like the following are the contents of
an engagement letter except okay so
let's take a look at the contents of the
engagement letter of course we have to
put there the objective of the audit and
we have to make sure that management
would understand what are the
responsibilities
of management for the fs to ensure that
there will be no misunderstandings no
along the way we also outline or we
mention the financial reporting
framework adopted by Management in
preparing the fs because this will
become the criteria that we use when we
evaluate the subject matter the subject
matter information we of course put in
the engagement letter the scope of the
audit like I mentioned what are its
parameters the form of any reports or
other communication of results uh of the
engagement other than the audit report
will there be other reports that we
expect to submit to management the fact
that there is an unavoidable risk that
even some material misstatement May
remain undiscovered so this is one way
for the auditor to alert management of
the very concept of audit risk right
it's very possible it's possible that
there may still be misstatements which
our audit may not be able to able to
uncover this is also where we outline
that management should give us
unrestricted access to records
documentation people and others and also
what is Management's responsibility for
internal control included also in the
engagement letter are Arrangements
regarding planning and performance of
the audit and an expectation of
receiving from management written
confirmation of representations made now
the written confirmation of
representations made we normally ask for
Management near the end of the audit but
at least management knows at the very
start that we will be asking this for
from them the request for the client to
confirm the terms of the engagement by
acknowledging the receipt of the
engagement letter description of any
other letters or reports that you expect
to issue to the client similar to the
form of any reports or other
communication that we mentioned a while
back and then of course the basis on
which the fees are computed and any
billing Arrangements the last one
perhaps being where you would be most
interested to look into but yes fees and
billing is included in the engagement
letter now very quickly let's talk about
the audit of components and what is its
impact or what what do we need to know
with regards audit of components in the
context of Engagement letters now a
component is essentially a subsidiary a
branch or a division the big question
now is should you send a separate
engagement letter to the components the
answer is it will depend it will depend
on certain factors such as who appoints
the auditor of the component
is a separate audit report to be issued
on the component okay are we legally
required to send a separate engagement
letter to the branch the subsidiary or
the division what is the extent of any
work performed by other Auditors what is
the degree of ownership by the parent
what is the degree of independence of
the components management and so you see
whether we send a separate engagement
letter to the component will depend on
these factors now we also get to talk
about recurring audits do you need to
send an engagement letter to a recurring
client an existing client for recurring
audits the answer is you don't actually
need to send an engagement letter every
year but you might find the need to send
a new one if you find the following
things for example if there is an
indication that the client has
misunderstood the objective and scope of
the audit you may want to spend send
rather a new engagement letter just to
ensure that they understand things
clearly or if there are any devised
special terms of the
engagement or take note of this if
there's a recent change in Senior
Management board of directors or a
change in the ownership of the business
take note that the recent change must
happen in Senior Management bods or the
ownership of the business that being
said if there is simply a change in the
staff or the employees of your client
who do not occupy a senior role then
there's no need for you to send a
separate or a new engagement letter but
once the changes involve Senior
Management upwards there may be a need
for you or you must send a new
engagement letter to ensure that you
guys still agree on the same terms if
there's a significant change in the
nature or size of the client's business
say for example from uh sole
proprietorship the client has now
decided to go into the corporate setup
so send a new engagement letter and of
course if you are legally required to do
so then by all means know if the law so
requires we send a new engagement letter
or if there's a change in the financial
reporting framework adopted by
Management in preparing the fs in other
words when the criteria has changed so
for example previously the client made
use of IFRS for smes and now they are
going to transition to full IFRS then
send a new engagement letter now what if
there are changes in the terms of the
engagement what what would you do okay
so for example you were ini ially
contracted for an audit and the client
suddenly told you well not necessarily
suddenly but then the client told you
you know what auditor I just realized I
I don't want an audit engagement anymore
can we just you know can you just do a
review so there is a change from a
higher level of assurance to a lower
level of assurance will you agree okay
so well again the answer to that is it
depends what is the reason for the
client's decision to change the
engagement if you find the reason to be
justifiable then by all means agree to
the change and do not make mention of
the old engagement because you have
already agreed so when you agree with
the client that there really is a need
to change the engagement to a lower
level of assurance then do the new
engagement proceed with the new
engagement move on do not mention the
previous engagement so as Not to cause
confusion on the readers of your report
okay unless of course the new engagement
is agreed upon procedures because if
it's agreed upon procedures you will
have to mention the previous procedures
but if it's not agreed upon please do
not make mention of the past past is
past okay that is if you have agreed to
the change in the term however what if
you do not find the reason to be
justifiable what if somehow you sense
that the client is simply requesting for
a change in engagement in order to avoid
a possible modification of the audit
opinion what if the client senses that
you're are going to give give a
qualified or adverse opinion and because
of that the client simply ask you to
change the engagement to agreed upon so
that you will not be able to give an
opinion and because of that you are not
convinced that there is a reason for the
change in engagement what will you do
well of course you refuse the change in
engagement you continue with the
original engagement now if you are not
allowed to continue with the original
engagement then withdraw from the
engagement so in short will you agree to
the change in the terms of Engagement it
depends if the reason is justifiable
such as for example the client does not
anymore need an audit then accept the
change in the terms of the engagement
then continue or proceed with the new
engagement do not mention the old unless
it's agreed upon but if you do not if
you're not convinced with the reason
given by the client you don't think it's
justifiable continue with the old
continue with the original if the client
refuses or does not allow you to
continue with the original
then withdraw from the engagement okay
so like what we have mentioned no there
may be reasons may prompt a change that
would prompt a change in the engagement
like change in circumstances there may
be a misunderstanding or a restriction
on the scope whether imposed by
management or caused by circumstances
and like what we have said carefully
consider the re the reason given for the
request particularly what the
implication of this in the scope of your
engagement all right so I think we have
reached 25 minutes and thankfully we
have completed already the first phase
which is pre-engagement now the next
phase is a bit lengthy there are a lot
of things to discuss because this is
also where we're going to talk about
materiality so I hope that you are you
still have the energy you should you
should have the energy because the next
phase is going to be exciting but
perhaps what you can do you could end
this video right here and before
starting the next video you may want to
take down some notes first so as to
capture the concepts we have just
discussed all right so I hope to see you
in the next video where we will discuss
audit planning
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