What is Lowballing and risks?
- Setting a fee below market rate
- Self-interest risk, may cut corners to maximise profit
Determinants of Fees? (6)
Personnel
Time taken
Expenses incurred
Nature of client
Degree of risk/responsibility
Importance of work to client
Risk assessment objectives
- identify high risk clients
- Determine appropriate fee
- Develop initial understanding of risk areas
Who can appoint auditors?
- Shareholders (>50% vote), within 28 days of latest FS filing
- Directors, if vacancy or first appointment
- Secretary of State in emergency, where there is no auditor and audit is due
Preconditions for an Audit
- Acceptable FR framework applied in FS preparation
- Obtain management agreement of their responsibilities (internal controls, access to relevant information)
What to do if preconditions not met?
Auditor discuss matter with management.
Don’t accept engagement unless required to do so.
Describe Engagement Letter
Purpose is to set out terms of engagement, acts as a contract
Main contents are the objective & scope, responsibilities of both auditor and management, auditor’s rights to information, and the form and contents of the audit reports
Also included : basis of fees, practicalities, need for a written representation letter, and the audit timetable.
Do other assurance engagements need an Engagement Letter?
Yes, maybe even more important due to variety of scope
Duty of outgoing auditor
Prepare and submit a statement of circumstances to company’s registered office
Rights of outgoing auditor
- Prepare written representations to be circulated to members of company
- Attend and speak at general meeting where appointment is considered
