Read critically and analogically and solve the following questions and

cases.

QUESTIONS

5.1 Another area of concern is whether to apply client acceptance procedures for audit

clients only or for clients seeking tax or management consulting assistance. Some CPAs

use client acceptance procedures for audit clients only, whereas others conduct a review

for all new clients using any service the CPA offers.

5.2 Auditors get their information about an audit client from three basic sources: their

experience with the client, publicly available information, and from the client themselves.

The source of the auditors’ experience with the client would prove the best for new

businesses. If the client is new, the auditor should consult prior auditors and increase the

preliminary information search. The method is to review documentation and discuss with

client lawyer, banker, and prior audit manager. Before accepting a new client an audit firm

will do a thorough investigation to determine if the client is acceptable and if the auditor

can meet the ethical requirements of independence, specific competence, etc. Sources of

information outside those mentioned for both new and existing clients include interviews

with local lawyers, other CPAs, banks and other businesses, although many of them may

be bound by obligations of confidentiality, depending on local circumstances.

5.3 Many auditing firms evaluate existing clients every year. In addition to the research
Discussed above, the auditor will consider any previous conflicts over scope of the audit,
Type of opinion and fees, pending litigation between the audit firm and client, and
Management integrity. These four factors strongly influence
Whether the relationship will continue. For continuing engagements, the auditor would
Update and re-evaluate information gathered from the prior years’ working papers. The
Auditor should also perform procedures designed to identify significant changes that have
Taken place since the last audit.
The auditor may also choose not to continue conducting audits for a client because he
Feels excessive risk is involved. For example, there may be regulatory conflict between a
Governmental agency and a client which could result in financial failure of the client and
Perhaps ultimately lawsuits against the auditor. It may be that the auditor feels that the
Industry (such as financial services) offers more risk than is acceptable to the specific
Auditor

5.4 he group auditor must form their own concurring opinion on any judgmental areas.

This does not require having the same depth of knowledge as the expert/other auditor, but

they would need to be able to review the third party’s files and have sufficient independent

knowledge to understand the work done, the reason for the work and the conclusions from

that evidence.

5.5 If expertise in a field other than accounting or auditing is necessary to obtain

Sufficient appropriate audit evidence, the auditor shall determine whether to use

The work of an auditor’s expert. Evaluating the Adequacy of the Auditor’s Expert’s Work

12. The auditor shall evaluate the adequacy of the auditor’s expert’s work for the

Auditor’s purposes, including:

(a) The relevance and reasonableness of that expert’s findings or conclusions,

And their consistency with other audit evidence;

(b) If that expert’s work involves use of significant assumptions and

Methods, the relevance and reasonableness of those assumptions and

Methods in the circumstances; and

(c) If that expert’s work involves the use of source data that is significant to

That expert’s work, the relevance, completeness, and accuracy of that

Source data.
5.6 The auditor will not communicate an issue in the “Key audit issues” section of his

report

When, as a result of that issue, it would be required to express a modified opinion of

Compliance with ISA 705. In extremely rare circumstances, the auditor determines that

the matter is not

You should communicate in the audit report because you can reasonably expect that

Adverse consequences of doing so would outweigh the benefits in the public interest that

said

Communication would have. This will not apply if the entity has publicly disclosed

information about

The question.

PROBLEMS AND EXERCISES

5.3 Evaluate the Client’s Background

5.13 Client Evaluation. The audit firm of F.A. Bloch and Co. has been
approached by the following companies who wish to retain Bloch
for audit work:
Interlewd, an internet company, whose website features
explicit images of male nudes and which operates male strip
clubs on the west coast of Australia.
Dreamtime, a company that operates gambling casino boats
off shore and video game machines in major Australian cities.
Bernadette, an entertainment company, whose chief executive officer has
been investi-gated by the Italian government for taking bribes, violating
public securities laws, conspiring to commit bodily harm, and issuing bad
checks. The CEO has not been convicted of any of these charges. The
board of directors claim that this happened many years ago, and he has
since run several companies successfully.
Required:
What procedures should F.A. Bloch and Co. use to investigate these
potential clients?
 Los procedimientos que FA Bloch & Co. deben usar para investigar a los
clientes potenciales son:
•Revise los estados financieros pasados del cliente.
• Consultar a terceros con conocimientos, como los auditores anteriores
del cliente propuesto, sus bancos, asesores legales y banqueros de
inversión, y otros en la comunidad financiera y comercial, en cuanto a la
reputación del cliente propuesto.
• Comunicarse con el auditor predecesor.
• Evaluar su capacidad para servir al cliente adecuadamente. En
circunstancias inusuales, una firma de auditores puede hacer que un
cliente sea investigado por un investigador profesional. Las firmas
auditoras están particularmente preocupadas por evitar la asociación con
un cliente relacionado con el crimen organizado. Las actividades
comerciales de Dreamtime, las máquinas de videojuegos y los casinos de
juegos de azar tienen un rendimiento mayor al normal.potencial para estar
bajo la influencia del crimen organizado. Por lo tant

What would F.A. Bloch and Co. consider in determining whether to accept
these clients?

5.4 Ability to Meet Ethical and Specific Competence Requirements

5.14 The audit firm of Guiseppe Mulciber, Dottore Commercialista, has
been asked to bid on an annual audit of the financial statements
Mammon, a publicly traded gold jewelry manufacturer. The Mulciber
firm has been performing assurance services for Mammon over the
past three years. Almost everyone on the audit team has
investments in stocks and mutual funds. Mammon and the Mulciber
had disputes in the past about the extent of assurance services
provided. One of the members of the proposed audit staff was an
employee of Mammon until 14 months ago. Only one person on the
proposed audit team has audited a jewelry manufacturer.
Required:
What procedures would Mulciber conduct to determine independence of
the firm and audit team?
Lo que deberian hacer es un Control de las inversiones financieras personales de
los socios y estados financieros de todos mas una declaración juraentda de todo.
proper competencies? Explain.
What circumstances might dqualify Mulciber from serving as an auditor for
Mannon?

5.5 Use of Other Professionals in the Audit

5.15 Use of Other Auditor. Rene Lodeve, Reviseur d’Entreprises, has
been hired by BelleRei, N.V., a Liege, Belgium, company. Lodeve
will audit all accounts except those of a subsidiary in Spain, which
 represents 15 percent of the total sales of BelleRei, which is audited
by an “other accountant,” Jeme Indigena.
Required:
What procedures would Lodeve perform to determine whether Indigena
has sufficient professional competence to perform the work?
Debe mirar que tenga imparcialidad, no haya grado de compatibilidad y
consanguinidad tambien debe serciorare de sus estudios y hoja de vida.
If Lodeve concludes that he cannot depend on the work of Indigena, and
he cannot perform additional procedures, what sort of audit opinion should
Lodeve give?

Como auditoría tu no puedes basar tu trabajo confiando en el trabajo de

una persona ya que nuestro trabajo es 100% basadose en la seguridad y
exactitud de la informacion

5.6 Communicating With the Predecessor (Existing) Auditor

5.16 Preparation and Planning. Roger Buckland was recently appointed
auditor of Waterfield Ltd., a public company. He had communicated
with the company’s previous auditor before accepting the audit.
Buckland attended the company’s shareholders meeting at which he
was appointed but he has not yet visited the company’s offices.
Required:
List the matters that Buckland should attend to between the time of
his appointment and the commencement of his audit work in order
to effectively plan the audit. [CICA adapted]
Primero se debe saber que tipo de auditoria se va a realizar y luego de eso
ya tener estos conceptos a tener en cuenta para hacer la Planificación
son:

Alcance de los objetivos.

Priorización de áreas a auditar.

Resultados parciales a considerar.

Plazos para la ejecución del trabajo.

Equipo de Auditoría.

Presupuesto.

Revisión de documentación en general

preparar las actividades a realizar

 Tener contacto directo en la auditoria

5.7 Acceptance by the Client – The Engagement Proposal

5.17 Audit Proposal. Juao Castelo, Revisor Oficial de Contas (ROC), is
required to write a client audit proposal for two clients, one
continuing (Jinne) and one new (Autodafe).
Required:
Based on the proposal for a continuing client and a new client discussed in
this chapter, list the contents of the proposal to Jinne and Autodafe.
What do the two proposals have in common? What is different?

Lo que tirne n en comun las dos propuestas es que los dos clientes deben
ser investigados como rige la norma y siguiendo los parámetros
establecidos, lo que tiene de diferentes es que cada uno es de un modo
diferente
Describe what is discussed in each section of the proposal to Autodafe.

5.18 Audit Fees. Ursula Chona, Contador Publico (CP Titulado), an

auditor from Medellin, Colombia, was referred a client by a local
attorney and she has agreed to accept the client for a financial
statements audit. She must now determine what fee she will
charge.
Required:
According to international ethics, the fee should be a fair reflection of effort,
taking what conditions into account? Se debe mirar la magnitud de la
Empresa a auditar, el tiempo asignado
On what basis should the fee be calculated? Bajo el sueldo que estilos a
nivel general el país y la magnitud de la empresa

Should out-of-pocket expenses be included or listed separately? No, ya

que son pagos estipulafos y todo debe estar basado en lo q se firmo en el
contrato.
What are the circumstances under which Chona can ask for a contingency
fee?
Can Chona pay a “finder’s fee” to the attorney who referred the client to
her?
No puede ya que con el no hay ningún vinculo laboral
5.8 The Audit Engagement Letter
5.19 Engagement Letter. Stephen Hu, CPA, from Taipei, Taiwan, has
just accepted a new client, Kiwan Xou. The company will be
audited under the ISA and IAS standards. The client will be given
an audit opinion and a management letter. The fees are based on
 hourly fees, the audit will take 125 hours, and will involve one
senior (TD3,500 per hour), two staff auditors (TD2,800 per hour),
and a partner (TD5,000 per hour). Out-of-pocket expenses are
estimated at TD65,000. The payments will be 33 percent at the
beginning of the audit with the balance at the end of the audit.
Required:
Based on the above information, write an engagement letter to
Kiwan Xou from Steven Hu.

CASE
5.20 Description of the Business. Compu Group Corporation designs,
develops, manufactures, and markets a wide range of personal
computing products, including desktop personal computers,
portable computers, network servers, and peripheral products
that store and manage data in network environments. The
company markets its products primarily to business, home,
government, and education customers. The company operates in
one principal industry segment across geographically diverse
markets.
The company is subject to legal proceedings and claims which
arise in the ordinary course of its business. Management does
not believe that the outcome of any of those matters will have a
material adverse effect on the company’s consolidated financial
position or operating results.
Required:
Based on the information presented evaluate the company for acceptance.
List criteria that must be reviewed in order to determine acceptability.
Make a checklist for areas covered.
Outline your audit approach.
(Adopted from idea by Phoong Ngo, Qiang Hsing, and Chi-hui Lee)