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wish to include in the engagement letter the auditor’s expectation of receiving written confirmation concerning representations made in connection with the audit. AUS 520, “Management Representations” requires the auditor to obtain evidence that management acknowledges its responsibility for the fair presentation of the financial report in accordance with the relevant financial reporting framework, and has approved the financial report. Other AUSs require certain specific representations. The auditor may consider including in the engagement letter an indication of the anticipated matters on which management representations will be obtained. This provides an opportunity for the auditor to discuss with the owner-manager at the outset of the engagement the reasons for obtaining such representations and the potential impact on the auditor’s report should such representations not be obtained, which may help to avoid a problem arising as the audit is nearing completion. It will also help the auditor consider audit and reporting implications if the owner-manager cannot make or refuse to make the necessary representations.
.23 In some cases the auditor may determine that it will not be possible to obtain sufficient evidence to form an opinion on the financial report because of weaknesses that may arise from the characteristics of the small entity. In these circumstances, and where permitted by the relevant jurisdiction, the auditor may decide not to accept the engagement, or to withdraw from the engagement after acceptance. Alternatively, the auditor may decide to continue with the engagement but express an “except for” or an inability to form an opinion. The auditor has regard to paragraph .54 of AUS 702 “The Audit Report on a General Purpose Financial Report” which states that the auditor would not ordinarily accept an audit engagement in which the terms of the engagement are such that the auditor believes that an inability to form an opinion would be expressed.
AUS 206: Quality Control for Audit Work
.24 The primary objective of quality control is to provide assurance that audits are conducted in accordance with AUSs. The auditor of a small entity keeps this objective in mind when determining the nature, timing, and extent of the policies and procedures appropriate to the circumstances.
.25 Paragraph .05 of AUS 206 states: “The nature, timing and extent of an audit firm’s quality control policies and procedures depend on a number of factors such as the size and nature of the practice…” Many audits of small entities are undertaken by small audit firms. Such firms, in determining appropriate policies and procedures, consider the areas listed in paragraph .06 of AUS 206 which are:
(a) Professional Independence;
(b) Employment;
(c) assignment of Personnel to Engagements;
(d) Supervision;
(e) Guidance and Assistance;
(f) Client Evaluation; and (g) Allocation of Administrative and Technical Responsibilities.
.26 With the possible exception of “assignment of personnel to engagements” and “supervision” (which may not be relevant to sole practitioners with no assistants), each of these will ordinarily be reflected in the arrangements established by firms auditing small entities.
.27 The requirements of AUS 206 relating to quality control on individual audits are mostly relevant to engagements where some of the work is delegated to one or more assistants. Many small entity audits are carried out entirely by the audit en