Discussion with the Client
Chapter Twenty
Syllabus topic 1, "Audit Planning – Meaning, Objectives, Factors to be considered, Sources of obtaining information, Discussion with Client, Overall Audit Approach"
Pages 54 to 55 of 98
In one line
Before the work begins the auditor and the client settle the scope, the timetable, the assistance and the fee, and the auditor records what was settled in an engagement letter.
What is discussed
| Matter | Why it is settled first | |
|---|---|---|
| 1 | The scope of the engagement | So that neither side later claims the audit did or did not cover something |
| 2 | The statutory position | That the audit is under the Companies Act, that the scope cannot be reduced, and what the auditor must report |
| 3 | The responsibilities of each side | The Board's for the statements, section 134(1); the auditor's for the opinion |
| 4 | The timetable | The date the accounts will be ready, the dates of the visits, the date of the report, the annual general meeting |
| 5 | The assistance the client will give | Schedules to be prepared, records to be available, staff to be free, and a place to work |
| 6 | Access | To books, vouchers, minute books, branches and, where relevant, subsidiaries |
| 7 | The stock count | Its date, so that the auditor can attend, which is often the single most important date in the plan |
| 8 | Fees and billing | Fixed under section 142, and the basis on which they are computed |
| 9 | Any other services, and whether they are permitted | Section 144 forbids nine kinds |
| 10 | The involvement of internal audit and of other auditors | Coordination |
Item seven is the one to name in an answer. The auditor must attend the physical verification of stock to have evidence of its existence, and he cannot attend a count he was told about afterwards.
Who is talked to
| Person | About |
|---|---|
| The Board or the audit committee | Scope, responsibilities, significant risks, fees, and anything sensitive |
| The chief financial officer | The timetable, the accounts, the policies, the schedules |
| The accounting staff | How the system actually works, as against how it is described |
| The internal auditor | His programme, his findings, and where his work can be relied on |
| Operating managers | The business, its pressures and its changes |
Talking to the accounting staff rather than only to the finance director is a professional point worth making. The system as described by management and the system as operated by clerks are often two different systems, and the difference is a control risk.
The engagement letter
What was agreed is recorded, and the letter is sent by the auditor and acknowledged by the client.
| The letter records | |
|---|---|
| The objective and scope of the audit | |
| The responsibilities of the auditor | |
| The responsibilities of management, including for the statements and for internal control | |
| The applicable reporting framework | The Companies Act and the accounting standards |
| The expected form and content of the report, with a note that the form may change | |
| Unrestricted access to records, documentation and persons | |
| The fee and the basis of billing | |
| Other matters: use of experts, involvement of internal audit, other auditors, and the arrangements over any non-audit work |
The rest of this chapter
Module one is free. The rest of this chapter comes with the B.Com. (Accountancy) Semester 3 notes.
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The rest of this subject
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