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3-2: The successor auditor is responsible for initiating the communication with the

predecessor auditor. However, the successor auditor should request permission of the
prospective client before contacting the predecessor auditor. The successor auditor's
communication with the predecessor auditor should include questions related to the integrity
of management, disagreements with management over accounting and auditing issues, and
the predecessor auditor's understanding of the change in auditors.
3-3: An engagement letter is used to formalize the arrangement reached between the auditor
and client. It serves as a contract that outlines the responsibilities of both parties and is
intended to prevent misunderstandings between the two parties. The letter states the
responsibilities of the auditor and management, that the audit will be conducted in accordance
with auditing standards, that certain types of audit procedures will be conducted and written
representations will be obtained from management, and that the audit may not detect all
material errors and fraud. The engagement letter might include:
Arrangements involving the use of specialists or internal auditors.
Any limitation of the liability of the auditor or client, such as indemnification to the
auditor for liability arising from knowing misrepresentations to the auditor by management.
(Note that regulatory bodies, such as the SEC, may restrict or prohibit such liability limiting
Additional services to be provided relating to regulatory requirements.
Arrangements regarding other services (e.g., assurance, tax, or consulting services).
3-5: Audit committee: In a U.S. publicly traded company, an audit committee is an operating
committee of the board of directors charged with oversight of financial reporting and

Directly responsible for overseeing work of any registered public accounting firm
employed by the

Must preapprove all audit and non-audit services provided by its auditors.
Must establish procedures to follow for complaints.
Must have authority to engage independent counsel.

3-15: Four factor causes lower percentage

High risk of misstatement within the account balance, class of transaction or disclosure.
Increased number of accounting issues that require significant judgment and/or more

estimates with high estimation uncertainty.

A history of significant deficiencies and/or a high number of deficiencies in internal

High turnover of senior management or key financial reporting personnel.

Problem 3-26
a) Tish & Field obtain information about available financial information (annual reports,
interim financial statements, income tax returns, etc.) during its inquiry of the predecessor
auditor prior to accepting the engagement.
b) Following additional audit procedure teish & Field should perform in evaluating Rebel as
a potential client:
1. Inquire of third parties regarding any information concerning the integrity of the
prospective client and its management. (Such inquiries should be directed to the
prospective clients bankers and lawyers, credit agencies and other members of the
business community who may have such knowledge.)
2. Communicate with the predecessor auditor about whether there were any
disagreements about accounting policies, audit procedures or similar significant
3. Consider whether the prospective client has any circumstances that will require
special attention or that may represent unusual business or audit risks, such as
litigation or going-concern issues.
4. Determine if the firm is independent of the entity and able to provide the desired

Determine if the firm has the necessary technical skills and knowledge of the industry
to complete the engagement.

6. Determine if acceptance of the entity would violate any applicable regulatory or

ethical requirements such as those in the IESBA Code of Ethics for Professional

c) Trish & Field would have generally include following other matters in the engagement
Arrangements involving the use of experts or internal auditors.
Explanation of the auditors responsibilities to communicate audit matters of
governance interest with those charged with governance.
Additional services to be provided relating to regulatory requirements.
Arrangements regarding other services (e.g. assurance, tax or consulting services).