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    Audit Theory Case Analysis

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    Sheila Mary Gregorio
    Mark Honest has been invited to audit Heavenly Company's 2021 financial statements after Charmaine, the previous auditor, was terminated. Before accepting, Mark should [1] communicate with Charmaine to discuss any disagreements with management or reasons for termination, and [2] review Charmaine's working papers during planning to effectively set the scope of the new audit. Preparing an engagement letter avoids misunderstandings by specifying the objective, responsibilities of both parties, applicable financial framework, expected reports, and benefits the client.

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    Audit Theory Case Analysis

    Uploaded by

    Sheila Mary Gregorio
    428 views2 pages
    Mark Honest has been invited to audit Heavenly Company's 2021 financial statements after Charmaine, the previous auditor, was terminated. Before accepting, Mark should [1] communicate with Charmaine to discuss any disagreements with management or reasons for termination, and [2] review Charmaine's working papers during planning to effectively set the scope of the new audit. Preparing an engagement letter avoids misunderstandings by specifying the objective, responsibilities of both parties, applicable financial framework, expected reports, and benefits the client.

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    Mark Honest has been invited to audit Heavenly Company's 2021 financial statements after Charmaine, the previous auditor, was terminated. Before accepting, Mark should [1] communicate with Charmaine to discuss any disagreements with management or reasons for termination, and [2] review Charmaine's working papers during planning to effectively set the scope of the new audit. Preparing an engagement letter avoids misunderstandings by specifying the objective, responsibilities of both parties, applicable financial framework, expected reports, and benefits the client.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    428 views2 pages

    Audit Theory Case Analysis

    Uploaded by

    Sheila Mary Gregorio
    Mark Honest has been invited to audit Heavenly Company's 2021 financial statements after Charmaine, the previous auditor, was terminated. Before accepting, Mark should [1] communicate with Charmaine to discuss any disagreements with management or reasons for termination, and [2] review Charmaine's working papers during planning to effectively set the scope of the new audit. Preparing an engagement letter avoids misunderstandings by specifying the objective, responsibilities of both parties, applicable financial framework, expected reports, and benefits the client.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    of 2

    Case Analysis

    By: Sheila Mary D. Gregorio

    Case 1

    Charmaine, CPA, audited Heavenly Company’s financial statements for the year-ended December 31,
    2020. On November 1, 2021, Heavenly Company notified Charmaine that it was changing auditors and
    that Charmaine’s services were being terminated. On November 5, 2021, Heavenly Company invited
    Mark Honest, CPA to make a proposal for an engagement to audit its financial statements for the year
    December 31, 2021.

    Required:

    1. What procedures concerning Charmaine should Mark Honest perform before accepting the
    engagement?

    Before accepting the engagement, Mark Honest, the successor auditor should communicate and discuss
    matters first with Charmaine, the predecessor auditor with the authorization from Heavenly Company
    that Charmaine can respond fully to his inquiries. This procedure is also helpful in evaluating company’s
    integrity. He may ask Charmaine if on the previous audits there were certain disagreements with
    management as to accounting policies, audit procedures, or other similarly significant matters, and on
    her understanding as to why the company wanted to change their auditor.

    2. What additional procedures should Mark Honest consider performing during the planning phase
    of this audit (after acceptance of the engagement) that would not be performed during the
    audit of a continuing client?

    After the acceptance of the engagement, Mark Honest should consider performing during the planning
    phase of this audit the review of the working papers of Charmaine. This may help him in effectively
    setting and planning the nature, timing and extent of his audit procedures. He may include reviewing
    the documents of the previous audit plan and programs, internal control’s policies and procedures,
    audit results, and other matters of continuing accounting and auditing significance, such as the working
    paper analysis of balance sheet accounts and those relating to contingencies. Also, the predecessor
    auditor should reach an understanding with the successor auditor as to the use of the working papers.
    Case 2

    An independent auditor has been asked to audit the financial statements of a new client. All preliminary
    verbal discussions and inquiries among auditors, the company, the predecessor auditor and all other
    necessary parties have been completed. The auditor is now preparing an engagement letter.

    Required:

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

    a. The objective and scope of the audit of the financial statements


    b. The responsibilities of the auditor
    c. The responsibilities of the management
    d. Identification of the applicable financial reporting framework for the preparation of the
    financial statements
    e. Reference to the expected form and content of any reports to be issued by the auditor and a
    statement that there may be circumstances in which a report may differ from its expected
    form and content.

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

    Preparing an engagement letter will help avoid misunderstandings with respect to the audit and in
    setting expectations. With this, they can specify appropriately the objective and scope of the audit,
    the responsibilities of both parties, the auditor and the management, the expected output for this
    engagement and other matters and expectations. This will also make the client assured of when will
    be the service be completed and for how much it will cost them for in the letter the agreed price for
    the service is written. The letter also makes it clear if other costs are involved that are not covered in
    the agreement.

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