Chat History– 1st session Professional Appointments

[22:01:52]

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Paper P7

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[22:03:37] sali110: 1st session- 15 Feb 2011
[22:04:16] sali110: Professional Appointments (chapter 3 Kaplan text)
[22:31:23] sali110: ok lets start
[22:31:44] sali110: professional appointments
[22:32:16] shehla: ok
[22:32:17] sali110: what matters should consider before accepting a new client or engagement?
[22:32:36] furqansarwar: risk
[22:32:38] hellohowlowlow: talking to previous auditor
[22:32:51] furqansarwar: yup
[22:33:00] sali110: ok
[22:33:08] hellohowlowlow: size of client
[22:33:11] sn0b01: client and information abt him
[22:33:12] hellohowlowlow: staff
[22:33:13] shehla: understanding of entity
[22:33:27] sali110: yes
[22:33:44] sn0b01: ethical issues
[22:33:44] sali110: ISA 210
[22:33:46] sn0b01: if any
[22:34:18] sali110: before accepting an engament
[22:34:29] sali110: the auditor must establish
[22:34:49] sali110: whether the preconitions for and audit are present
[22:34:51] furqansarwar: understanin about entity
[22:35:05] sali110: and that there is a common understanding between
[22:35:17] sali110: auditor and management
[22:35:20] shehla: whats preconditions?
[22:35:30] sali110: what are preconditions?
[22:35:38] sali110: anybody?
[22:35:46] sn0b01: that F/s are acc. to ifrs
[22:35:55] sali110: hmm
[22:35:59] sali110: good
[22:36:15] sali110: preconditions are:
[22:36:15] shehla: thats the real issue to understand not pre condition
[22:36:23] sn0b01: management is ready to provide all information necessary for the audit to go on
[22:36:39] sali110: acceptable fin reporting framework
[22:36:47] sali110: {sn0b01} right
[22:36:49] sali110: 🙂
[22:36:51] shehla: and how he get that inform?
[22:37:17] sali110: clear?
[22:37:25] sn0b01: yes
[22:37:42] sali110: what if client imposes limition on the scope of audit?
[22:37:42] sn0b01: acceptable as in under that regulations
[22:37:46] sn0b01: applicable
[22:37:57] sn0b01: preconditions not satisfied
[22:38:12] sn0b01: and a qualified opinion necessary
[22:38:27] furqansarwar: he should deny simply
[22:38:28] sn0b01: so cannot accept the assignment
[22:38:49] shehla: non acceptance is not the solution
[22:39:21] shehla: first he inform the senior managment and try to convince them
[22:39:30] sali110: what if regulations does not allow the auditor to decline the audit?
[22:39:30] furqansarwar: yup
[22:39:52] sali110: well
[22:40:10] sali110: if auditor believes that the limititions are high
[22:40:21] sali110: and auditor can not do his audit properly
[22:40:48] sali110: then he will have to give disclaimer and he can deny audit also
[22:40:49] sali110: 🙂
[22:40:57] sali110: {sn0b01} {furqansarwar} :yes:
[22:41:02] sali110: good
[22:41:27] sn0b01: {sali110} what if regulations does not allow the auditor to decline the audit? is is possible?? how?
[22:41:36] furqansarwar: {sali110} yup
[22:41:40] sali110: yes it is possible
[22:41:48] sali110: then he will give disclaimer
[22:42:08] sali110: disclaimer means no opinion on financial statements
[22:42:29] sali110: ok?
[22:42:35] furqansarwar: ya
[22:42:55] sali110: auditor will have to consider other issues also
[22:43:03] sali110: like ethical issues
[22:43:17] sali110: any threat if auditor accepts audit
[22:43:34] furqansarwar: ya these e necsessay as a professional
[22:44:26] sali110: what are acceptnace procedures?
[22:44:55] sn0b01: dawing up an engagement letter
[22:45:06] sn0b01: and agreeing on it?
[22:45:17] sali110: it is after acceptance
[22:45:45] sn0b01: ok then asking the previous or incumbent auditor?
[22:46:16] sn0b01: KYC, gathering info. abt th client
[22:46:16] sali110: yes
[22:46:31] sn0b01: ?
[22:46:48] sali110: ok let me describe
[22:46:52] furqansarwar: right
[22:47:01] sali110: members appoint auditor
[22:47:14] sali110: right?
[22:47:23] sn0b01: right
[22:47:34] sali110: members ask auditor to accept nomination as auditor
[22:47:48] sn0b01: okay
[22:48:30] sali110: then auditor requests prosepective clients permission to communicate with existing auditor
[22:48:56] sali110: if prospective client refuses
[22:49:00] furqansarwar: hummmmmmm
[22:49:10] sali110: auditor decline permission
[22:49:18] sali110: decline nomination*
[22:50:18] sali110: but if permission is given then auditor will request in writting all information necessary to decide whtere or not to accept nominations
[22:51:22] sali110: on receipt existinf auditor requests permission of client to communicate with nominee proposed
[22:51:45] sali110: if permission is refused
[22:51:58] sali110: proposed nominee declines nomination
[22:52:19] sali110: if permission is given existing auditor should
[22:52:52] sali110: discuss full all information by nominee to assist in his decission
[22:53:17] sali110: discuss freely with proposed nominee all matters relevant to the appointment
[22:53:21] sali110: 🙂
[22:53:26] sali110: sleepin?
[22:53:30] sali110: read it out
[22:53:39] sn0b01: yeah reading
[22:53:41] sali110: and lets disscuss if any problem
[22:53:50] sn0b01: just letting you finish
[22:53:52] sn0b01: not till now
[22:54:55] sali110: {furqansarwar} and all?
[22:55:27] sali110: shall we proceed?
[22:55:37] sn0b01: {sali110} yes
[22:55:47] furqansarwar: hummmmmmmmmmmm
[22:55:59] sali110: ok then comes
[22:56:12] sali110: The Etiquette letter
[22:56:37] sali110: any idea?
[22:56:56] sali110: its other name is professional clearance letter
[22:57:20] furqansarwar: whoi will post this discussion on p7 forum?
[22:58:27] sn0b01: yes well its a letter to previous auditor informing him that you may be the next auditor and asking his permission+ any issues he wants to discuss
[22:58:41] sn0b01: maybe pending ethical issues.
[22:59:12] sali110: not agree fully
[22:59:13] sali110: 🙂
[22:59:27] sali110: proposed auditor writes it
[22:59:43] sali110: to the existing auditor
[22:59:55] sali110: and asks
[23:00:32] furqansarwar: ok
[23:00:35] sali110: to determine any reasons that would preclude him from taking on this engagement
[23:01:23] sali110: and ask existings auditors to discuss all matter which can hinder new auditor to do his audit
[23:01:37] sali110: now
[23:01:52] sali110: existing auditor will ask for permission from client
[23:02:25] sali110: because auditor is bound with fundamental princple of confidetiality
[23:02:45] sn0b01: that i didnt know
[23:02:50] sali110: 🙂
[23:02:56] sn0b01: how is confedentiality involved?
[23:03:02] sali110: good
[23:03:26] sali110: you are auditor of furqansarwar and compnay!
[23:03:34] sali110: and i am new auditor
[23:03:45] furqansarwar: hahaa
[23:03:47] sn0b01: ok
[23:03:57] sali110: i approach you please tell me what the matters of company
[23:04:01] sali110: will you tell me?
[23:04:09] sn0b01: okaaayyy
[23:04:15] sn0b01: i get it
[23:04:22] sali110: you will have to keep in mind all funamental principles
[23:04:24] sali110: good
[23:04:27] sali110: clear now
[23:04:32] sn0b01: yeah
[23:04:50] sali110: well if existing auditor does not reply to new auditor?
[23:04:52] sali110: then?
[23:05:17] sn0b01: we try all possible ways of contacting
[23:05:30] sn0b01: ask client to ask auditor to talk
[23:05:51] sali110: he is not replying letter
[23:06:03] sn0b01: ask client why he thinks auditor is not communicating
[23:06:09] sali110: nops
[23:06:10] sn0b01: call him
[23:06:14] sali110: naah
[23:06:23] sali110: you will have no record of calls
[23:06:30] sn0b01: in the end still no talk decline
[23:06:30] sali110: is it evidence?
[23:06:37] sali110: well
[23:06:55] sali110: new auditor will send furthur letter
[23:07:31] sali110: and will write like this
[23:07:43] sali110: if i do not get reply in seven days
[23:07:53] sali110: i will assume that there is no problme
[23:08:08] sali110: well in end its auditor’s responsibility
[23:08:20] sali110: he will has to decide carefully
[23:08:33] sali110: ok?
[23:09:19] sali110: {sn0b01} ok?
[23:09:31] sn0b01: okay…
[23:09:31] sn0b01: decide wetherto accpt or not?
[23:09:34] sali110: yes
[23:09:45] sn0b01: okay
[23:09:57] sali110: then it is appointment of auditor
[23:10:12] sn0b01: ok
[23:10:25] sali110: new auditor will have to confirm that
[23:10:35] sn0b01: so engagement terms are decided?
[23:10:47] sali110: outoing auditor has vacated office in a correct manner
[23:10:54] sn0b01: okay
[23:11:13] sn0b01: statementof no circumstances
[23:11:23] sali110: and will check that new auditor is appointed properly as per laws
[23:11:44] sali110: then agreeing the terms of engagement
[23:12:01] sali110: it is engagement letter
[23:12:12] sn0b01: yes ok
[23:12:51] sali110: ISA 210 states that the auditor shall agree the terms of the audit
[23:13:25] sali110: the terms are recoreded in a written audit engagement letter and should include
[23:14:06] sali110: = The objective and scope of the audit of the financial statemetns
[23:14:27] sali110: =the responsibilites of the auditor
[23:14:41] sali110: the responsibilities of management
[23:15:07] sali110: identification of applicable financial reporting framework
[23:15:17] sn0b01: ok
[23:15:29] sn0b01: there is a whole list in bpp
[23:15:40] sali110: yes you can read it from there
[23:15:53] sn0b01: sure so thats it?
[23:16:00] sali110: no
[23:16:10] sali110: another technical point here
[23:16:24] sali110: audot of componenets of group
[23:16:24] sn0b01: {sali110} what?
[23:16:31] sali110: audit*
[23:16:36] sn0b01: i hvnt read that..
[23:16:48] sali110: ok
[23:17:04] sali110: when auditor of parent compnay is auditor of its subsidiary
[23:17:14] sali110: branch or group
[23:18:07] sali110: the audit firm must decide whether to issue a single engagement letter covering all the components or a separate letter to each component
[23:18:18] sn0b01: okay
[23:18:28] sn0b01: both possible in law?
[23:18:35] sali110: if auditor sends one letter then it will have to make clear reference
[23:18:54] sali110: yes these are allowed by standards
[23:19:01] sali110: ok
[23:19:20] sali110: should we do 2 short questions?
[23:19:48] sali110: shall we?
[23:20:15] sn0b01: okay
[23:20:28] sn0b01: yes
[23:20:52] sn0b01: just was noting some stuff out
[23:21:14] sali110: i will upload it
[23:21:23] sn0b01: ok
[23:21:26] sali110: well questions here
[23:22:00] sali110: sn0b01 acountants has been invited to become the auditor of sali110 compnay
[23:22:46] sali110: a company with a poor reputation since several senior managers were convicted of corruption recently.
[23:23:47] sn0b01: ok
[23:23:53] sali110: the company is adamant that it has now changed its culture and is hopping that sn0b01 wiil become its auditors as pasrt of this new ethical outlook
[23:24:22] sali110: identify possible safegguards sn0b01 might consider
[23:24:24] sali110: ?
[23:24:50] sn0b01: it will ask previous auditors
[23:25:04] sali110: ok
[23:25:07] sali110: and
[23:25:26] sn0b01: well will make enquries etc.
[23:25:32] sali110: allocating senior managers on client
[23:25:37] sali110: first thing
[23:25:40] sn0b01: how?
[23:25:54] sali110: obtain detailed knowledge of client
[23:26:14] sn0b01: {sali110} allocating senior managers on client….wat does this mean?
[23:26:16] sali110: securing clients commitment to implement strong internal controls
[23:26:30] sali110: dear
[23:26:42] sali110: if you accepted audit
[23:26:54] sali110: tou will have to send senior team on audit
[23:27:02] sali110: as they will have more experience
[23:27:12] sn0b01: ok so that means senior partners
[23:27:15] sali110: yes
[23:27:24] sn0b01: i thought managers in client co.
[23:27:28] sali110: senior partner and senior managers
[23:27:32] sali110: nops
[23:27:37] sali110: managers in firm
[23:27:49] sn0b01: so those are like the safeguards to ensure that we got the best ppl on the job
[23:28:00] sali110: yes exactly
[23:28:05] sn0b01: wat kind of safeguards will the auditor take?
[23:28:11] sn0b01: in his working
[23:28:50] sali110: all safeguards are for audtior
[23:29:09] sali110: not for client
[23:29:23] sn0b01: okay….hey he can also go for professional indemnity insurance na?
[23:29:40] sali110: sorry
[23:30:13] sali110: after all safeguards if auditor feels that these safeguard will not reduce the threat
[23:30:21] sali110: then he can decline audit
[23:30:28] sali110: ok?
[23:30:29] sn0b01: yes last resort
[23:30:33] sn0b01: ok
[23:30:41] sali110: yes
[23:30:52] sali110: so that it!
[23:30:58] sn0b01: okay
[23:30:59] sali110: end of our 1st session