Before Accepting an Engagement to Audit a New Client, an Auditor

question 265

Multiple Choice

Before accepting an engagement to audit a new client, an auditor is required to:

• A) Make inquiries of the predecessor auditor after obtaining the consent of the prospective client.
• B) Obtain an understanding of the entity and its environment, including its internal control.
• C) Prepare a memorandum setting forth the staffing requirements and documenting the preliminary audit plan.
• D) Discuss the management representation letter with the prospective client's audit committee.

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Definitions:

Hedge Derivatives

Hedge derivatives are financial instruments used to reduce or mitigate the risk of adverse price movements in an asset, typically involving futures, options, and swaps.

Cash Flows

The total amount of money being transferred into and out of a business, especially affecting its liquidity.