Terms of Engagment

Question 1

Management-Imposed Scope Limitation

Answer 1

if major, should not accept an engagement

management restricts the auditor from something

Question 2

Scope Limitation

Answer 2

Lack of records

Question 3

Engagement Letter Requires

Answer 3

• objective
• responsible of the auditor
• responsibilities of management

Question 4

Audit is subject to inherent limitations/risks that error and /or fraud will not be detected

Answer 4

If discovered, CPA must report.

Question 5

Communication with the Predecessor Auditor

Answer 5

• ask about management integrity
• disagreements with management
• reasons for the change
• communication to management regarding fraud, noncompliance.
• ask about prior CPA review and workpapers

Question 6

Recurring Audits - Terms of the Engagment

Answer 6

• misunderstands the objective or scope of the audit
• change in senior management
• change in ownership
• change in the nature or size of the entity’s business
• legal or regulatory

Question 7

Engagement Letter Content

Answer 7

• objective and scope of the audit
• the responsibilities of the auditor
• the responsibilities of management

Question 8

Change in Engagement

Answer 8

• change must be justified
• acceptable reasons - change in client requirements, misunderstanding as to the nature of the service
• unacceptable - uncover errors or fraud, create misleading or deceptive financial statements.

Question 9

Communication with the Predecessor Auditor

Answer 9

• mandatory for initial audits
• consider withdrawing if management will not allow you to communicate with Predecessor auditor
• ask prior auditor about management integrity, disagreements with management, reason for change in auditors, communication in regards to fraud and noncompliance.