Question

Chapter 6 Q 1 What is included in an auditor’s engagement letter?

Q 2 How to test existence?

Q 3 Requirements about auditor communications about fraud?

Q 4 Procedures performed (or not performed) as a part of planning an audit engagement?

Q 5 What is Control risk, Detection risk, Inherent risk?

Q 6 Materiality for planning purposes is?

Answer 1

1 Audit engagement letter is the document contains the auditors acceptance of appointment.It includes objectives,scope,extend of responsibilities,price and type of report ect

2 How test existence

Existence of tangible assets are tested through observation and simply examine the title deed,in case of intangible assets and liabilities verification is done through source document and concerned books of accounts.

3 Communication of frauds

The main duty of the auditor is to detect and prevent frauds and errors and show a fair view of of affairs of the company,in the absence of communication of frauds and errors there is no relevance of auditing.

4 planning an audit engagement is an arrangement in between company and auditor to perform audit

It includes examination of accounting records,period of auditing,price,responsibilities,type of report etc.It contains all matters relating to audit .At the same time the auditor do not engage the internal working of the company.

5 Control risk

Mistake due to internal control,or risk of material misstatement in the financial statements arising due to absence or failure in the operation of relevant control in the entity

Detection risk

In this case auditor will fail to find material misstatement existed in the financial organisation.eg fraud or errors

Inherent risk

Material misstatement due to other reasons rather than internal control

6. Materiality is a concept or convention with in a auditing and accounting relating to the importance of an amount ,transaction or discrepancy