RequirementsPreconditionsfor an Audit6. In order to establishwhether the preconditions for an audit are present, the auditor shall:(a) Determinewhether the financial reporting framework to be applied in the preparationof the financial statements is acceptable; and (Ref: Para. A2-A10)(b)Obtain the agreement of management that it acknowledges and understands itsresponsibility: (Ref: Para. A11-A14, A20)(i)For the preparation of the financial statementsin accordance with the applicablefinancial reporting framework, including where relevant their fair presentation; (Ref: Para. A15)(ii)For such internal controlas management determines is necessary to enable thepreparation of financial statements that are free from material misstatement, whether due to fraudor error; and (Ref: Para. A16-A19)(iii)To provide the auditorwith:a.Access to all informationof which management is aware that is relevant to the preparationof the financial statements such as records, documentation and other matters;b.Additional informationthat the auditor may request from management for the purpose ofthe audit; andc.Unrestricted access to personswithin the entity from whom the auditor determines itnecessary to obtain audit evidence.Limitation on Scope Prior to Audit Engagement Acceptance7. If management or those charged with governance impose a limitation on the scope of theauditor's work in the terms of a proposed audit engagement such that the auditor believes thelimitation will result in the auditor disclaiming an opinion on the financial statements,the auditorshall not accept such a limited engagementas an audit engagement, unless required by lawor regulation to do so.
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Relevant to ACCA Qualification Paper P7 The syllabus for Paper P7, Advanced Audit and Assurance includes Professional Appointments (syllabus reference C4). The learning outcomes include the explanation of matters that should be considered and procedures that should be followed by a firm before accepting a new client, a new engagement for an existing client, or agreeing the terms of any new engagement. The engagement may be an audit, or it may be a non-audit or assurance engagement. Acceptance decisions are crucially important, because new clients and/or engagements can pose threats to objectivity, or create risk exposure to the firm, which must be carefully evaluated. One of the current issues being debated in the profession is whether there should be an outright ban on the provision of non-audit services to audit clients. In addition, new International Standard on Auditing (ISA) requirements compel the firm to establish whether preconditions for an audit are present when faced with a potential new audit engagement. All of these factors mean that acceptance decisions must be taken with care.
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