Page 31 - CA Inter Audit PARAM

CA Ravi Taori

QNO— Preliminary engagement activities New Course – (SM25/M24R)
300.00.20 Bhaskar CNO - SA300.005
Discuss how performing preliminary engagement activities as part of planning an audit assists
auditor.
OR
Preliminary engagement activities include certain activities to be performed by an auditor while
planning an audit. Discuss such activities briefly. How performing such activities assists an auditor?
Answer Performing preliminary engagement activities assists the auditor in identifying and evaluating events or
circumstances that may affect auditor’s ability to plan and perform audit engagement.

Preliminary engagement activities include :
1) Performing procedures regarding the continuance of client relationship
2) Evaluating Compliance with ethical requirements including independence
3) Establishing an understanding of terms of engagement with the client to ensure there are no
misunderstandings.

QNO— Ensuring Compliance with Ethical Requirements & Independence New Course – (SM25/ N23E/S24R)
300.00.50 Bhaskar CNO - SA300.005
Discuss how an engagement partner ensures that firm complies with relevant ethical
requirements including independence in relation to client.
OR
CA N, engagement partner of LPS & Associates, is planning for audit of a large company. As part of
preliminary engagement activities being performed in this regard, he wants to ensure that compliance
with independence requirements is adhered. How shall he form a conclusion that audit firm complies
with independence requirements?
Answer The auditor shall continuously evaluate compliance with ethical requirements including independence.
“Independence” means that the judgement of a person is not subordinate to the wishes or direction of
another person who might have engaged him.

Throughout the audit engagement, the engagement partner shall remain alert, through observation and
making inquiries as necessary, for evidence of non-compliance with relevant ethical requirements by
members of the engagement team. If matters come to the engagement partner’s attention that indicate
that members of the engagement team have not complied with relevant ethical requirements, the
engagement partner, in consultation with others in the firm, shall determine the appropriate action.

The engagement partner shall form a conclusion on compliance with independence requirements that
apply to the audit engagement. In doing so, the engagement partner shall: -

(i) Obtain relevant information from the firm to identify and evaluate circumstances and
relationships that create threats to independence.
(ii) Evaluate information on identified breaches, if any, of the firm’s independence policies and
procedures to determine whether they create a threat to independence for the audit
engagement and
(iii) Take appropriate action to eliminate such threats or reduce them to an acceptable level by
applying safeguards, or, if considered appropriate, to withdraw from the audit engagement,
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