ACCA · Question 04 · Audit Framework and Regulation
SECTION A - CASE 1: QUANTUMLEAP AI
SCENARIO:
You are an audit manager at Sterling & Co. You are reviewing the client portfolio and ethical considerations for a prospective new client, QuantumLeap AI, a rapidly growing tech startup developing machine learning algorithms for healthcare. The CEO of QuantumLeap AI has offered Sterling & Co a 15% equity stake in the company in lieu of audit fees for the first three years, citing cash flow constraints. Furthermore, the audit partner's spouse recently purchased a small number of shares in QuantumLeap AI. QuantumLeap has also requested that Sterling & Co provide valuation services for their proprietary algorithms, which are highly subjective and material to the financial statements.
QUESTION:
Before accepting the audit engagement with QuantumLeap AI, Sterling & Co must establish whether the preconditions for an audit are present. Which TWO of the following are preconditions for an audit under ISA 210 Agreeing the Terms of Audit Engagements?
Answer options:
Determining whether the financial reporting framework to be applied in the preparation of the financial statements is acceptable.
Ensuring the client has an established internal audit function.
Obtaining the agreement of management that it acknowledges and understands its responsibility for the preparation of the financial statements.
Confirming that the audit fee will be paid in cash prior to the commencement of audit fieldwork.
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