Engagement Team Discussions :
The engagement team should hold discussions to gain better understanding of the bank and its environment, including internal control, and
also to assess the potential for material misstatements of the financial statements. All these discussions should be appropriately documented for future reference. The discussion provides:
An opportunity for more experienced engagement team members, including the audit engagement partner, to share their insights based on their knowledge of the bank and its environment.
An opportunity for engagement team members to exchange information about the bank’s business risks.
An understanding amongst the engagement team members about effect of the results of the risk assessment procedures on other aspects of the audit, including decisions about the nature, timing, and extent of further audit procedures.
The discussion between the members of the engagement team and the audit engagement partner should be done on the susceptibility of the bank’s financial statements to material misstatements. These discussions are ordinarily done at the planning stage of an audit. Specific emphasis should be provided to the susceptibility of the bank’s financial statements to material misstatement due to fraud, that enables the engagement team to consider an appropriate response to fraud risks, including those related to engagement risk, pervasive risks, and specific risks. It further enables the audit engagement partner to delegate the work to the experienced engagement team members, and to determine the procedures to be followed when fraud is identified. Further, audit engagement partner may review the need to involve specialists to address the issues relating to fraud.
The engagement team discussion ordinarily includes a discussion of the following matters:
Errors that may be more likely to occur;
Errors which have been identified in prior years;
Method by which fraud might be perpetrated by bank personnel or others within particular account balances and/or disclosures;
Audit responses to Engagement Risk, Pervasive Risks, and Specific Risks;
Need to maintain professional skepticism throughout the audit engagement;
Need to alert for information or other conditions that indicates that a material misstatement may have occurred (e.g., the bank’s application of accounting policies in the given facts and circumstances).
On the matters relating to fraud, the engagement team discussion ordinarily includes the following:
An exchange of ideas among engagement team members about how and where they believe the bank’s financial statements may be susceptible to
material misstatement due to fraud. Further, manner of involvement of the management, those charged with governance and others within the entity should also be discussed.
Consideration of circumstances that might be indicative of fraud in the earnings of the bank; and the practices that might be followed by the bank’s management to manage earnings that could lead to fraudulent financial reporting.
Consideration of the external/internal factors affecting the bank that may
create an incentive or pressure on management or others to commit fraud.
Consideration of management’s involvement in overseeing the employees
having access to cash or other assets susceptible to misappropriation.
Consideration of unusual or unexplained changes in behaviour or lifestyle of
management or employees that may have come to the attention of the
Consideration of the types of circumstances that, if encountered, might
indicate the possibility of fraud.
Selection of audit procedures to respond to the susceptibility of the fraud.
Consideration of any allegations of fraud or suspected fraud that may have
come to the auditor’s attention.
Consideration of the risk of management override of controls.
Further, the audit engagement partner should also consider matters to be communicated to the members of the Engagement Team not involved in the discussion. For multi-location audit engagements for which separate engagement teams are performing work under the supervision of audit engagement partners in separate locations, the auditor may hold multiple discussion that involve the
members of the engagement team in each significant location.
With respect to the engagement team discussions, the auditor may document the following matters:
discussion amongst the engagement team regarding the susceptibility of the material misstatement whether due to fraud or not; and
significant decisions reached during the discussion amongst the engagement team regarding the susceptibility of the material misstatement
whether due to fraud or not.