Under which of the circumstances below would the auditor conclude that withdrawal from the engagement is necessary?
[The following paragraphs were effective for audits of financial statements for periods beginning on or after December 15, 2002. They were deleted, effective for audits of fiscal years beginning on or after December 15, 2010. See
PCAOB Release No. 2010-004. Return to the current version.] Assessing risks of material misstatement due to fraud throughout the audit. The auditor's assessment of the risks of material misstatement due to fraud should be ongoing throughout the audit. Conditions may be identified during fieldwork that change or support a judgment regarding the assessment of
the risks, such as the following:
.69Evaluating whether analytical procedures performed as substantive tests or in the overall review stage of the audit indicate a previously unrecognized risk of material misstatement due to fraud. As discussed in paragraphs .28 through .30, the auditor should consider whether analytical procedures performed in planning the audit result in identifying any unusual or unexpected relationships that should be considered in assessing the risks of material misstatement due to fraud. The auditor also should evaluate whether analytical procedures that were performed as substantive tests or in the overall review stage of the audit (see section 329) indicate a previously unrecognized risk of material misstatement due to fraud. .70If not already performed during the overall review stage of the audit, the auditor should perform analytical procedures relating to revenue, as discussed in paragraph .29, through the end of the reporting period. .71Determining which particular trends and relationships may indicate a risk of material misstatement due to fraud requires professional judgment. Unusual relationships involving year-end revenue and income often are particularly relevant. These might include, for example, (a) uncharacteristically large amounts of income being reported in the last week or two of the reporting period from unusual transactions, as well as (b) income that is inconsistent with trends in cash flow from operations. .72Some unusual or unexpected analytical relationships may have been identified and may indicate a risk of material misstatement due to fraud because management or employees generally are unable to manipulate certain information to create seemingly normal or expected relationships. Some examples are as follows:
.73The auditor also should consider whether responses to inquiries throughout the audit about analytical relationships have been vague or implausible, or have produced evidence that is inconsistent with other evidential matter accumulated during the audit. .74Evaluating the risks of material misstatement due to fraud at or near the completion of fieldwork. At or near the completion of fieldwork, the auditor should evaluate whether the accumulated results of auditing procedures and other observations (for example, conditions and analytical relationships noted in paragraphs .69 through .73) affect the assessment of the risks of material misstatement due to fraud made earlier in the audit. This evaluation primarily is a qualitative matter based on the auditor's judgment. Such an evaluation may provide further insight about the risks of material misstatement due to fraud and whether there is a need to perform additional or different audit procedures. As part of this evaluation, the auditor with final responsibility for the audit should ascertain that there has been appropriate communication with the other audit team members throughout the audit regarding information or conditions indicative of risks of material misstatement due to fraud. fn 28 .75Responding to misstatements that may be the result of fraud. When audit test results identify misstatements in the financial statements, the auditor should consider whether such misstatements may be indicative of fraud. fn 29 That determination affects the auditor's evaluation of materiality and the related responses necessary as a result of that evaluation. fn 30 .76If the auditor believes that misstatements are or may be the result of fraud, but the effect of the misstatements is not material to the financial statements, the auditor nevertheless should evaluate the implications, especially those dealing with the organizational position of the person(s) involved. For example, fraud involving misappropriations of cash from a small petty cash fund normally would be of little significance to the auditor in assessing the risk of material misstatement due to fraud because both the manner of operating the fund and its size would tend to establish a limit on the amount of potential loss, and the custodianship of such funds normally is entrusted to a nonmanagement employee. fn 31 Conversely, if the matter involves higher-level management, even though the amount itself is not material to the financial statements, it may be indicative of a more pervasive problem, for example, implications about the integrity of management. fn 32 In such circumstances, the auditor should reevaluate the assessment of the risk of material misstatement due to fraud and its resulting impact on (a) the nature, timing, and extent of the tests of balances or transactions and (b) the assessment of the effectiveness of controls if control risk was assessed below the maximum. .77If the auditor believes that the misstatement is or may be the result of fraud, and either has determined that the effect could be material to the financial statements or has been unable to evaluate whether the effect is material, the auditor should:
.78The auditor's consideration of the risks of material misstatement and the results of audit tests may indicate such a significant risk of material misstatement due to fraud that the auditor should consider withdrawing from the engagement and communicating the reasons for withdrawal to the audit committee or others with equivalent authority and responsibility. fn 35 Whether the auditor concludes that withdrawal from the engagement is appropriate may depend on (a) the implications about the integrity of management and (b) the diligence and cooperation of management or the board of directors in investigating the circumstances and taking appropriate action. Because of the variety of circumstances that may arise, it is not possible to definitively describe when withdrawal is appropriate. fn 36 The auditor may wish to consult with legal counsel when considering withdrawal from an engagement. When can an auditor withdraw from an engagement?Auditors can withdraw from an audit if the rules of independence are broken during the audit process. If an auditor feels as though something has happened to where they cannot be objective, they have the right to withdraw from the audit.
Under what circumstances can an auditor change the terms of an audit engagement?Such circumstances are as follows: change in circumstances affecting the need for the service. a misunderstanding as to the nature of an audit as originally requested. a restriction on the scope of the audit engagement, whether imposed by management or caused by other circumstances.
Under what circumstances the auditor should not accept an audit engagement?Audit engagement should not be accepted under following circumstances: Serious limitations on scope. Financial reporting framework is unacceptable. Management refuses to provide agreement that it acknowledges its responsibility as regards financial statements.
Under what circumstances will the auditor give a qualified opinion in a review engagement?A qualified opinion is issued when the auditor is unable to issue an unqualified opinion due to a departure from the financial reporting framework or scope of limitation.
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