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Management is responsible for identifying the financial reporting framework to be used in the
preparation and presentation of the financial statements. Management is also responsible for
preparing and presenting the financial statements in accordance with that applicable financial
reporting framework. This responsibility includes:
Designing, implementing and maintaining internal control relevant to the preparation and
presentation of financial statements those are free from material misstatement, whether due
to fraud or error;
Selecting and applying appropriate accounting policies; and
Making accounting estimates that are reasonable in the circumstances
Audit Risk
The risk that the auditor expresses an inappropriate audit opinion when the financial statements are
materially misstated is known as audit risk. Audit risk refers the possibility of an auditor to
express an inappropriate audit opinion on the subject matter.
Inherent risk is the susceptibility of an assertion to a misstatement that could be material, either
individually or when aggregated with other misstatements, assuming that there are no related
controls.
Control risk is the risk that a misstatement that could occur in an assertion and that could be
material, either individually or when aggregated with other misstatements, will not be prevented, or
detected and corrected, on a timely basis by the entitys internal control.
Detection risk is the risk that the auditor will not detect a misstatement that exists in an assertion
that could be material, either individually or when aggregated with other misstatements.
Definition
The engagement letter documents and confirms the auditors acceptance of the appointment, the
objective and scope of the audit, the extent of the auditors responsibilities to the client and the
form of any reports.
Principal Contents
The form and content of audit engagement letters may vary for each client, but they would
generally include reference to:
Where the terms of the engagement are changed, the auditor and the client should agree on the new
terms. The auditor should not agree to a change of engagement where there is no reasonable
justification for doing so. If the auditor is unable to agree to a change of the engagement and is not
permitted to continue the original engagement, the auditor should withdraw and consider whether
there is any obligation, either contractual or otherwise, to report to other parties, such as those
charged with governance or shareholders, the circumstances necessitating the withdrawal.
Definition
Engagement partner the partner or other person in the firm who is responsible for the audit
engagement and its performance, and for the auditors report that is issued on behalf of the firm,
and who, where required, has the appropriate authority from a professional, legal or regulatory
body.
Engagement quality control review a process designed to provide an objective evaluation,
before the auditors report is issued, of the significant judgments the engagement team made and
the conclusions they reached in formulating the auditors report.
Engagement quality control reviewer a partner, other person in the firm, suitably qualified
external person, or a team made up of such individuals, with sufficient and appropriate experience
and authority to objectively evaluate, before the auditors report is issued, the significant judgments
the engagement team made and the conclusions they reached in formulating the auditors report.
Engagement team all personnel performing an audit engagement, including any experts
contracted by the firm in connection with that audit engagement
Firm a sole practitioner, partnership or corporation or other entity of professional accountants.
Listed entity an entity whose shares, stock or debt are quoted or listed on a recognized stock
exchange, or are marketed under the regulations of a recognized stock exchange or other equivalent
body.
Monitoring a process comprising an ongoing consideration and evaluation of the firms system
of quality control, including a periodic inspection of a selection of completed engagements,
designed to enable the firm to obtain reasonable assurance that its system of quality control is
operating effectively.
Network firm an entity under common control, ownership or management with the firm or any
entity that a reasonable and informed third party having knowledge of all relevant information
would reasonably conclude as being part of the firm nationally or internationally
Partner any individual with authority to bind the firm with respect to the performance of a
professional services engagement.
Personnel partners and staff.
Staff professionals, other than partners, including any experts the firm employs.
Suitably qualified external person an individual outside the firm with the capabilities and
competence to act as an engagement partner
Leadership Responsibilities for Quality on Audits
The engagement partner should take responsibility for the overall quality on each audit engagement
to which that partner is assigned.
Ethical Requirements
The engagement partner should consider whether members of the engagement team have complied
with ethical requirements.
Independence
The engagement partner should form a conclusion on compliance with independence requirements
that apply to the audit engagement. In doing so, the engagement partner should obtain relevant
information to identify and evaluate circumstances and relationships that create threats to
Engagement Performance
The engagement partner should take responsibility for the direction, supervision and
performance of the audit engagement in compliance with professional standards and regulatory
and legal requirements, and for the auditors report that is issued to be appropriate in the
circumstances.
Before the auditors report is issued, the engagement partner, through review of the audit
documentation and discussion with the engagement team should be satisfied that sufficient
appropriate audit evidence has been obtained to support the conclusions reached and for the
auditors report to be issued.
Consultation
The engagement partner should:
Be responsible for the engagement team undertaking appropriate consultation on difficult or
contentious matters;
Be satisfied that members of the engagement team have undertaken appropriate consultation
during the course of the engagement, both within the engagement team and between the
engagement team and others at the appropriate level within or outside the firm;
Be satisfied that the nature and scope of, and conclusions resulting from, such consultations
are documented and agreed with the party consulted; and
Determine that conclusions resulting from consultations have been implemented.
Differences of Opinion
Where differences of opinion arise within the engagement team, with those consulted and, where
applicable, between the engagement partner and the engagement quality control reviewer, the
engagement team should follow the firms policies and procedures for dealing with and resolving
differences of opinion.