Question

Assignment Question(s):​​​​​​(Marks 5)

1- In auditing PP&E, explain the difference between recurring engagement ad new engagement?

2- How using independent agent affects the process of auditing dividends?

Answer 1

1. An audit engagement basically means an audit that an auditor performs. A new engagement means the audit of the company is newly accepted by the auditor. Terms and conditions are agreed with a particular client and the auditors and the client and sign an engagement letter or an agreement which sets out the scope of the audit / engagement. This maybe agreed to for the one year or for more than one year that follows. Recurring audit engagement means the same auditor carries out audit for the Company in the subsequent years after the first year the audit engagement was accepted.

In auditing PP&E - the same explanation applies whether it is a new or recurring engagement. If its a new engagement the PP&E is being audited for the first time and if it is a recurring engagement it is being audited by the same auditor for more than a year.

2. Ensuring the dividends paid out by the Company when auditing stockholders equity is crucial. A company pays out the shareholders in form of dividends. These maybe in cash or shares. to audit the dividend first step would be to check the board meeting minutes where the board of directors have agreed to pay certain dividends to its shareholders. Make sure the dividend amount reconciles to the amounts in the financial statements and the minutes. If the client uses an outside independent agent to process cash dividends, obtain a confirmation from the agent for the payments made. Alternatively, it can also be audited by verifying the amounts paid out to the agent from the remittance advices or bank payments. Since, before a cash dividend could be paid to the shareholders, the Company has to pay out the cash to the agent and the dividend paid should reconcile to the total you get when you multiply the dividend declared by the number of shares outstanding.