The preliminary stage consists of what is termed the engagement activity. It is the stage where the auditor decides to accept or not accept an audit engagement. Hence, it takes place before an audit engagement is accepted. Some of the activities of an auditor at this stage are inclusive of establishing an understanding of the terms of the engagement, checking for their clients compliance with ethical requirements relating to the engagement, checking for their clients integrity, determine whether the client can be appropriately serviced and performing procedures to determine whether the client or the audit firm wishes to establish or continue the audit relationship.

You are required to discuss the steps, which are involved in the preliminary stage of the audit process. (20 marks)