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AT-5907_pre engagement

AT-5907_pre engagement - Page 1 of 4 CPA REVIEW SCHOOL OF...

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Page 1 of 4 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 misunderstandings with 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.
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