Question

Set out the steps you would take prior to the commencement of an audit of a limited company which
has been a client for a number of years.

Answer 1

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Answer 2

Answer:

Explanation:

Steps to be taken before the commencement of  a new audit.

Scope of Duties

• In the event of audit & other situations, the auditor must know the nature of the duties as set out in the Company Act and must discuss the audit with the individual involved in the audit.

Letter of Engagement

• An auditor must procure a letter of engagement to prevent any "misunderstanding" with the client. It is an audit arrangement with a client. This  is a "standard letter" which is consistent with proven accounting practice & special assignment and If there is any addition to this document,it should be included to it

Knowledge about Business, Accounting System, and Technical Detail

Complete knowledge about the company of the client is desirable. An

Auditor can gain knowledge through the following

• The auditor may visit the factory site so as to know the production process & to comprehend the nature of material, labour & machine.
• The auditor must read the available document  such as the Association Memorandum or the collaboration text, as appropriate. A list of officers and employees along with their work profiles. should be obtained by the auditor  
• The client's detailed accounting system, its scope & usefulness and the customer's list of books should be studied.
• Knowledge of technical aspects of business is important to understand the the transaction nature.

List of documents/schedule require from client

After all of the preparations listed above, the auditor should give a list of auditing documents or schedules and instructions. These documents are

• Stock statement with value and method of valuation.
• Schedule of fixed assets.
• Schedule of creditors/debtors.
• Schedule of "prepaid outstanding expenses", and "expenditure & income".
• List of "deferred revenue expenses".
• List of capital expenditure incurred in the relevant financial year.
• "Investment schedule" with acquisition cost.

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