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Hello Sir :
The following are the preconditions for an audit:
The preconditions for an audit are that management acknowledges and
understands its responsibility for:
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Preparation of the financial statements in accordance with the applicable
financial reporting framework.
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Internal control necessary for the financial statements to give a true and
fair view.
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Providing the auditor with access to all relevant information and
explanations.but in OT notes we have some thing says:
Before you say yes to to an audit.Sir can you clarify about the distinctions between the two because they seem like they overlap ping.
Thanks,
I don’t have notes to hand but, in short, there’s more to “saying yes” than meeting the preconditions. The preconditions are about making sure that management understands its responsibilities for the financial statements and will cooperate with the auditor. The auditor will have other things to consider, like ethical/independence issues and practical issues such as timing of resources.
Thanks
I am trying to add something but the page is not accepting but you can refer to the notes page no 46 SEP 21 to JUN 22 notes.
Thanks
My original answer stands – “preconditions” are a professional requirement of ISA 210, but there are other considerations – ethical, practical, etc.
Thanks Sir,
In the notes there some conditions that the auditor should consider before saying yes :
2. The appointment process: before you say ‘Yes’…
Auditors must exercise great caution if asked to be the auditors of an organisation.
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Are they professionally qualified to act? Is it legal and ethical for them to do so? For example,
they shouldn’t accept an appointment if the fees exceed the 15% limit for public interest
companies, unless there are adequate safeguards.
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Do they have adequate resources in terms of staff, time, and expertise? If the potential audit
client acts in a specialist area of business and the auditors have no prior experience of that, it
would be very unwise for them to accept the appointment.
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Investigate the client, its management, and directors. Many firms of auditors have access to
databases which, for example, will allow them to search on directors’ names to see if any of the
directors have been banned from being directors of companies because of their past behaviour.
They may discover that it is too risky to become the auditor of a company if they have no trust in
the honesty of the directors. The audit fee is often modest, why risk your reputation by
undertaking an audit where the directors may be fraudulent?
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Communicate with present auditors. There is a professional requirement to do this and it is
essential to find out why the old auditors are retiring or being removed.These what I am thinking of.
Thanks,
Sorry, but I don’t understand what it is that you don’t understand (!)
The preconditions are a requirement of ISA 210:
4. For purposes of the ISAs, the following term has the meaning attributed below:
Preconditions for an audit – The use by management of an acceptable
financial reporting framework in the preparation of the financial statements
and the agreement of management and, where appropriate, those charged with
governance to the premise2 on which an audit is conducted.Preconditions for an Audit
6. In order to establish whether the preconditions for an audit are present, the
auditor shall:
(a) Determine whether the financial reporting framework to be applied in
the preparation of the financial statements is acceptable; and (Ref: Para.
A2–A10)
(b) Obtain the agreement of management that it acknowledges and
understands its responsibility: (Ref: Para. A11–A14, A21)
(i) For the preparation of the financial statements in accordance with
the applicable financial reporting framework, including where
relevant their fair presentation; (Ref: Para. A15)
(ii) For such internal control as management determines is necessary
to enable the preparation of financial statements that are free from
material misstatement, whether due to fraud or error; and (Ref:
Para. A16–A19)
(iii) To provide the auditor with:
a. Access to all information of which management is aware
that is relevant to the preparation of the financial statements
such as records, documentation and other matters;
b. Additional information that the auditor may request from
management for the purpose of the audit; and
c. Unrestricted access to persons within the entity from whom
the auditor determines it necessary to obtain audit evidence.But satisfying the preconditions is only ONE aspect of “agreeing the terms of audit engagements” – before agreeing the terms, does the auditor even want to have this entity as an audit client? Or be associated with its directors? Or what the business does? Can the auditor – ETHICALLY – accept a nomination? Etc, etc, etc
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