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.

Reading the current year's interim financial statements.

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

Answer:

The preliminary engagement and planning activities that Parker needs to complete are:

·         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.

·         Drafting an appropriate engagement letter.

·         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.