Which of the following least likely requires the auditor to send a new engagement letter?

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Pre 12 Quiz

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PRE-12-QUIZ (2)

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AT-5907

CPA REVIEW SCHOOL OF THE PHILIPPINES

M a n i l a

AUDITING THEORY

PRE-ENGAGEMENT

Related PSAs: PSA 210

PSA 210 - Terms of Audit Engagements

The auditor and the client should agree on the terms of the engagement. The agreed terms would

need to be recorded in an audit engagement letter or other suitable form of contract.

It is in the interest of both client and auditor that the auditor sends an engagement letter, preferably

before the commencement of the engagement, to help in avoiding misunderstandingswith respect

to the engagement.

The engagement letter documents and confirms:

1. the auditor’s acceptance of the appointment;

2. the objective and scope of the audit;

3. the extent of the auditor’s responsibilities to the client; and

4. the form of any reports.

Principal Contents

The form and content of audit engagement letters may vary for each client, but they would

generally include reference to:

• The objective of the audit of financial statements.

• Management’s responsibility for the financial statements.

• The scope of the audit, including reference to applicable legislation, regulations, or

pronouncements of professional bodies to which the auditor adheres.

• The form of any reports or other communication of results of the engagement.

• The fact that because of the test nature and other inherent limitations of an audit, together

with the inherent limitations of any accounting and internal control system, there is an

unavoidable risk that even some material misstatement may remain undiscovered.

• Unrestricted access to whatever records, documentation and other information requested

in connection with the audit.

The auditor may also wish to include in the letter:

• Arrangements regarding the planning of the audit.

• Expectation of receiving from management written confirmation concerning

representations made in connection with the audit.

• Request for the client to confirm the terms of the engagement by acknowledging receipt

of the engagement letter.

• Description of any other letters or reports the auditor expects to issue to the client.

• Basis on which fees are computed and any billing arrangements.

When relevant, the following points could also be made:

• Arrangements concerning the involvement of other auditors and experts in some aspects

of the audit.

• Arrangements concerning the involvement of internal auditors and other client staff.

• Arrangements to be made with the predecessor auditor, if any, in the case of an initial

audit.

• Any restriction of the auditor’s liability when such possibility exists.

• A reference to any further agreements between the auditor and the client.

Audits of Components

When the auditor of a parent entity is also the auditor of its subsidiary, branch or division

(component), the factors that influence the decision whether to send a separate engagement letter

to the component include:

• Who appoints the auditor of the component.

• Whether a separate audit report is to be issued on the component.

• Legal requirements.

Which of the following is least likely to be included in the auditors engagement letter?

In which of the following situations would the auditor be unlikely to send a new engagement?

Under which event or circumstance would least likely require the auditor to send a new engagement letter?

Why should an auditor send a new engagement letter?