Which of the following is a 'precondition for an audit' that must be established before accepting an engagement?

Answer options:

The auditor must have prior experience in the client's industry.

Management acknowledges its responsibility for the design, implementation, and maintenance of internal control.

The client must have a clean audit opinion from the prior year.

The auditor must confirm that fraud risk is low.

How to approach this question

Recall AU-C 210. Management must agree to the 'premises' of the audit.

Full Answer

B.Management acknowledges its responsibility for the design, implementation, and maintenance of internal control.✓ Correct

Before accepting an engagement, the auditor must establish that the preconditions for an audit are present. This includes obtaining management's agreement that it acknowledges and understands its responsibility for the preparation of financial statements and for internal control (DIM - Design, Implementation, Maintenance).

Common mistakes

Thinking industry experience is a mandatory precondition (it's a competency requirement but can be obtained after acceptance).

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