Ligand Pharmaceuticals
Ligand Pharmaceuticals
Questions
1. Describe what you believe is implied by the term “ engagement risk.” What are the key factors likely considered by Deloitte and other audit firms when assessing engagement risk? How, if at all, are auditors’ professional responsibilities affected when a client poses a higher than normal degree of engagement risk?
The idea of engagement risk pertains to the risk of exposure to financial loss or lowered reputation due to an audit engagement. This risk could apply to the entity, the risk that the adit will fail to note material misstatement and/or the risk of auditor exposure to financial loss or lowered reputation due to an engagement.y any number of circumstances at a particular entity. This includes management incompetence, management misconduct, prior fraud, high values of year- end transactions,significant complex transactions, litigation, or constant conflict with prior auditors.
When engagement risk is heightened there are several responsibilities that the auditor now holds if they accept the engagement.The first thing is that the auditor must design and plan audit procedures that adequately assess and test affected items in financial statements. It is also imperative that results are reported completely and that these results are used to garner new ideas for processes the company could enact to mitigate or even eliminate the source of the engagement risk. This is imperative so that audit firms are also reporting any foreseeable trouble spots that might surface in future audits.
What quality control mechanisms should major accounting firms have in place to ensure that audit partners have the proper training and experience to supervise audit engagements?
There are three major actions that audit firms should regularly take to ensure that audit partners have the correct skill and knowledge set to adequately perform audits. The first action is for every audit firm to have some form of peer review to analyze the quality of audit work done by partners. This will help identify those partners that are excelling and also identify those that need training or posssibly need to be removed from current audit engagements. It will also help to identify specific issues that need to be addressed for each employee. The next step is to ensure that there is continuing education opportunities for auditors, As with any other industry, audit firms have the responsibility to prvide education opportunities that ensure auditors skills stay honed and that auditors remain abreast of new developments and regulations in the industry. It is imperative that audit firms ensure some diversity in the accounts that their partners are engaged. When employees become too comfortable in any situation, the risk of carelessness or negligence