Question 3 (30 marks)

John Lee is the manager in charge of the audit of the upcoming annual audit of Hing Fat Ltd, a new audit client. All the preliminary verbal discussions and enquiries among the auditors, the company, the predecessor auditor and all other necessary parties have been completed. John will supervise two audit assistants on the engagement and will visit the client again before the audit eldwork begins.

John has established an understanding with the Head of Internal Audit on the assistance to be provided by the internal audit department and is now drafting the engagement letter.

Required

1. aList the items that should be included in a typical engagement letter in these circumstances. (8 marks)
2. bExplain the bene ts derived from preparing an engagement letter.(6 marks)
3. cDiscuss eight planning activities that John Lee still needs to complete. (16 marks)