2015-2016 Term 2
ABA368
ADVANCED AUDITING
Section 01 Group 9
Lesson 3 Summary
For the lesson on 29 Jan 2016
Group Members:
Lee Chak Wang
Yeung Ka Ying
Yung Sik Yau
Li Collin
Yip Tsz Him
Student ID:
201222018H
201222203H
201222083H
201222207H
201322606E
1
Table of Content
Topic Recap ................................................................................. 3
Purpose of Engagement Letter .................................................... 4
When to send an engagement letter ............................................. 4
Contents of an engagement letter ................................................ 4
Audit documentation.................................................................... 5
2
Planning materiality and risk assessment (textbook: ch.8)
Topic Recap
Changes in auditor
appointment
Appointment
Removal/Resignation
Issues to consider
Ethical
Rights & Duties in
Audit Document
Legal
accordance with
Companies Ordinance
Risk Analysis
HKSA230: Belongs to
the auditor
HKSQC I
Client Screening
Engagement Letter
Existing Client
New Client

Obtain details of last
appointed auditors
Consult last
appointed auditors
Review available
financial statement
Inquire of a third
party






Consider ability to
serve
Consider any significant
change
Consider change in
management
Acceptance






Ensure last appointed auditor’s removal or resignation
have been properly concluded
Special notice reviewed
Obtain a copy of resolution passed
Perform professional clearance
Submit engagement letter
Verify opening balances (HKSA 510 (Clarified)) (See
Chapter 14)
-Set out scope/responsibilities
-Update when necessary
-Disclosure of items
Audit Planning
Importance
Strategy
3
Purpose of Engagement Letter






State the responsibility of the audit and director
Set out the basis act as auditor
Set out the scope of audit (eg. Assessment of the company’s accounting system)
Confirm auditor’s acceptance of engagement
Help in avoid misunderstanding with respect to engagement between auditor and
the entity (eg. Set out the agreement of terms)
Fee basis set


Set out the responsibility of directors
The form of the report that are going to issue
When to send an engagement letter
 For new clients, before any professional work has been started.
 For recurring audits, whenever there is a significant change in circumstances, a
revised engagement letter should be sent.
 After the acceptance of engagement letter
Contents of an engagement letter



Objective of the audit
Directors' responsibilities
Auditor's responsibilities – form an opinion to show a true and fair view and
comply with the Hong Kong Companies Ordinance

Scope of auditor's work –applicable legislation, regulations and auditing
standards, review accounting system, collection of audit evidence, and tests of
internal controls
Form of reports for the engagement
Stating an unavoidable risk that some material misstatements may still be
undiscovered due to inherent limitations of an audit
Any additional work required from auditor – bookkeeping, taxation or other
services



4

Irregularities and fraud – primary responsibility is on directors


Fees and basis of charge
The effective date of the engagement letter
Audit documentation
Audit documentation refers to the record of audit procedures performed, relevant
audit evidence obtained, and the conclusions the auditor reached.
In accordance with HKSA 230, the auditor prepares, on a timely basis, audit
documentation that provides:
 A sufficient and appropriate record of the basis for the auditor's report
 Evidence that the audit was performed in accordance with HKSAs and
applicable legal and regulatory requirements.
Audit working papers are owned by the auditor. In the event of auditors taking
over an audit from another firm, they are not entitled to take over all the audit files
that that firm has put together on the entity.
The followings are some frequently asked question about the working paper:




Have any compliance? Yes, HKSA230
Who own the audit working paper? CPA firm auditor
Does client have right to access the working papers? NO
Should auditor assemble the audit documentation? Yes
5