Engagement Letter

Question 1

Definition
Content of engagement letter
Additional points include

Answer 1

Here are the smart notes:

Engagement Letter

• The audit firm should submit an engagement letter to the board of directors after accepting the audit appointment.
• The engagement letter serves as the basis for the contract between the company and the auditor.

Content of Engagement Letter

1. Objective and Scope: Details of the audit objective and scope.
2. Auditor’s Responsibilities: Responsibilities of the auditor.
3. Management’s Responsibilities: Responsibilities of management.
4. Financial Reporting Framework: Identification of the underlying financial reporting framework.
5. Reports: Reference to the expected form and content of any reports to be issued.

Additional Points to Include

1. Audit Planning and Performance: Arrangements regarding audit planning and performance.
2. Internal Auditor Involvement: Arrangements regarding involvement of internal auditor.
3. Written Representations: Expectation that management will provide written representations.
4. Limitations of Audit: Statement regarding the inherent limitations of an audit.
5. Events after Auditor’s Report: Request to inform auditor about events occurred after the date of auditor’s report.
6. Restriction of Auditor’s Liability: Any restriction of auditor’s liability.
7. Access to Information: Expectation that management will provide access to all relevant information.
8. Draft Financial Statements: Agreement to provide draft financial statements and other relevant information.
9. Fees and Billing: Basis on which fees are computed and billing arrangements.
10. Acknowledgement: Request for management to acknowledge receipt of the engagement letter and agree to its terms.