After accepting an appointment, ASA 210.9 (ISA 210.9) and APES 305.3.1 require the auditor and the entity to agree on the terms of engagement. ASA 210.10–11 (ISA 210.10–11) require that the agreed terms of the engagement shall be recorded in an engagement letter or other suitable form of the written agreement unless law or regulation prescribes in sufficient detail the terms of the audit engagement. The auditor should document the arrangements made with the client and clarify any matters that may be misunderstood. This should help protect the audit firm and ensure that the client fully understands the auditor’s position.

The form and content of the audit engagement letter vary for each client. It should generally include reference to the following matters set out in ASA 210.10 (ISA 210.10):

• the objective and scope of the financial report audit
• the auditor’s responsibilities
• management’s responsibilities
• the identification of the applicable financial reporting framework
• the form and contents of any reports, and a statement indicating that there may be circumstances in which the form and content may differ.

Other matters that could be included are: specification of the schedules to be prepared by the client; arrangements concerning the involvement of other auditors, experts or internal auditors; and the method and frequency of billing of fees.

Assume that you are an independent auditor, got an audit offer which you intend to accept. As you have accepted your audit client, you need to prepare an engagement letter specifying the agreed terms and conditions. This part of the assessment requires you to prepare an engagement letter as an independent audit.

For your reference, an example of an audit engagement letter is contained in Basic Concept II. You can refer/follow this letter to prepare your own, however, you may need to modify in accordance with the circumstances.

Answer rating: 100% (QA)

It is in the interest of both client and auditor that the auditor sends an engagement letter prefera... View the full answer