Hibiscus Ltd is a company that provides call centre services for a variety of organisations. It operates in a medium sized city in which Alamanda Auditors is the largest audit firm. Hibiscus Ltd is owned and run by two entrepreneurs with experience in this sector and has been in existence for five years. It is expanding rapidly in terms of its client base, the number of staff it employs and its profits. It is now 1 December 2010 and Alamanda Auditors has been approached to perform the audit for the year ending 31 December 2010. Alamanda Auditors has not audited this company before. Hibiscus Ltd has had three different firms of auditors since its incorporation.
Hibiscus Ltd’s directors have indicated to Alamanda Auditors informally that the reason they wish to change auditors is because of a disagreement about certain disclosures in the financial statements in the previous year. The directors consider that the disagreement is a trivial matter and have indicated that the company accountant will be able to provide Alamanda Auditors with the details once the audit has commenced. Alamanda Auditors has explained that before accepting the appointment, there are various matters to be considered within the firm and other procedures to be undertaken, some of which will require the cooperation of the directors. Alamanda Auditors has other clients that operate call centres. The directors have asked Alamanda Auditors to commence the audit immediately because audited accounts are needed by the bank by 31 January 2011. Alamanda Auditors is very busy at this time of year.
Required:
Question1. Describe the matters to consider within Alamanda Auditors and the other procedures that should be undertaken before accepting the appointment as auditor to Hibiscus Ltd.
Question2. Describe why it would be unsuitable to commence the audit before consideration of the matters and the procedures referred to in (a) above have been completed.
Question3. Describe the purpose of an engagement letter and list its contents.