Question

Parker is the in-charge auditor for the upcoming annual audit of FGH Company, a continuing audit client. Parker will supervise two assistants on the engagement and will visit the entity before the fieldwork begins.

Parker has completed the engagement letter and established an understanding with the Chief Internal Auditor on the assistance to be provided by the internal audit function.

Which of the following activities should be considered as preliminary engagement and planning activities? (Select all that apply.)

Check All That Apply

• Reading the current year's interim financial statements.

• Discussing the scope of the examination with management of the client.

• Establishing the timing of the audit work.

• Arranging with the client for adequate working space.

• Coordinating the assistance of client personnel in data preparation.

• Establishing and coordinating staffing requirements, including time budget.

• Holding a brainstorming meeting with assistants assigned to the engagement and discussing possible fraud-related issues.

• Determining the extent of involvement, if any, of consultants, specialists, and internal auditors.

• Considering the effects of applicable accounting and auditing pronouncements, particularly recent ones.

• Preparing documentation setting forth the preliminary audit plan.

• Establish overall materiality and tolerable misstatement.

• Making a preliminary assessment about control risk.

• Updating the prior year's written audit program and possibly developing new procedures as warranted by changes in the business.

• Checking the mathematical accuracy of the company's prior year bank statements.

• Making the final determination of control risk.  

• Communicating the established preliminary materiality level to management.

• Communicating with the client's customers regarding the correct valuation of accounts receivable.

• Writing a rough draft of the audit opinion based on the preliminary assessment.  

Answer 1

Preliminary Audit engagement and planning activates are basically conducted to

a)    Establishing an understanding of the terms of the engagement.

b)    Evaluating compliance with relevant ethical requirements and;

c)   Performing procedures required, regarding the continuance of the specific audit engagement, client relationship.

Selection from the question:

· Discussing the scope of the examination with management of the client.: This helps to know about Work to be performed, Scope and reporting responsibilities

· Establishing the timing of the audit work : Timing and extent of audit in preliminary stage helps audit in further stages.

· Arranging with the client for adequate working space.

· Coordinating the assistance of client personnel in data preparation : This helps in quick execution of audit .

· Establishing and coordinating staffing requirements, including time budget : This has to be done in order to know the staff requirement of audit

· Holding a brainstorming meeting with assistants assigned to the engagement and discussing possible fraud-related issues.

· Considering the effects of applicable accounting and auditing pronouncements, particularly recent ones

· Establish overall materiality and tolerable misstatement.

· Making a preliminary assessment about control risk.

· Updating the prior year's written audit program and possibly developing new procedures as warranted by changes in the business.

· Reading the current year's interim financial statements : This helps auditor know about the Going Concern of the entity