Reference no: EM132712758

Question -

1. Why is it necessary to perform preliminary engagement activities?

2. Why are certain procedures performed before accepting or continuing an audit engagement? What are these procedures performed?

3. Why is there a need to inquire the predecessor auditor in considering whether to accept or reject a new audit engagement?

4. What is an engagement letter? Search for an example of an engagement letter and identify its primary contents.

5. Why does a change in terms of an engagement occur? What procedures should an auditor perform whether to accept or not accept a change in engagement?

Problem 1 - The audit committee of the board of directors of Rebel Corporation asked Tish & Field, CPAs, to audit Rebel's financial statements for the year ended December 31, 2015. Tish & Field explained the need to make an inquiry of the predecessor auditor and requested permission to do so. Rebel's management agreed and authorized the predecessor auditor to respond fully to Tish & Field's inquiries.

Required:

a. What information should Tish & Field obtain during its inquiry of the predecessor auditor prior to accepting the engagement?

b. What additional audit procedures should Tish & Field perform in evaluating Rebel as a potential client?

Problem 2 - Parker is the in-charge auditor for the upcoming annual audit of FGH Company, a continuing audit client. Parker will supervise two assistants on the engagement and will visit the entity before the fieldwork begins. Parker has completed the engagement letter and established an understanding with the Chief Internal Auditor on the assistance to be provided by the internal audit function.

Required:

List the preliminary engagement and planning activities that Parker needs to complete.

Problem 3 - A CPA has been asked to audit the financial statements of a publicly held company for the first time. All preliminary verbal discussions and inquiries among the CPA, the company, the predecessor auditor, and all other necessary parties have been completed. The CPA is now preparing an engagement letter.

Required:

a. List the items that should be included in the typical engagement letter in these circumstances.

b. Describe the benefits derived from preparing an engagement letter.