The audit engagement letter, generally, should include a reference to each of the following except

 Options:

a) limitations of auditing b) responsibilities of management with respect to audit work c) expectation of receiving a written management representation letter. d) a description of the auditor’s method of sample selection.

The Correct Answer Is:

d) a description of the auditor’s method of sample selection.

Correct Answer Explanation: d) a description of the auditor’s method of sample selection.

The correct answer is (d) a description of the auditor’s method of sample selection. In an audit engagement letter, it is not necessary to include a detailed description of the auditor’s method of sample selection.

This level of detail is typically covered in the auditor’s working papers or documentation rather than in the engagement letter. The engagement letter serves as a formal contract between the auditor and the client, outlining the scope of the audit and the respective responsibilities of both parties.

The engagement letter should include a reference to the limitations of auditing (option a) to ensure that the client understands that the audit may not detect all instances of fraud or error due to inherent limitations in the audit process. This helps manage the client’s expectations regarding the extent and nature of the audit procedures.

It should also address the responsibilities of management with respect to audit work (option b). This ensures that the client is aware of their role in providing accurate and complete financial information, as well as facilitating the auditor’s access to necessary documentation and personnel during the audit process.

Additionally, the engagement letter should include an acknowledgment or expectation of receiving a written management representation letter (option c). This letter is a formal statement from management to the auditor, confirming the accuracy and completeness of the financial information provided and representations made during the audit.

Now, let’s explore why the other options are not correct:

a) Limitations of Auditing:

It’s crucial to articulate the limitations inherent in the audit process within the engagement letter. Auditors must convey that while they conduct audits in accordance with professional standards, certain limitations exist.

These limitations may stem from factors like the nature of audit evidence, the possibility of fraud going undetected, or constraints due to the timing and extent of audit procedures. Highlighting these limitations manages the client’s expectations, clarifying that an audit doesn’t provide absolute assurance but rather a reasonable level of assurance.

b) Responsibilities of Management:

Outlining the responsibilities of management in the engagement letter is fundamental. This section typically covers aspects such as providing access to necessary documents, ensuring accuracy and completeness of financial records, facilitating communication with relevant personnel, and disclosing all relevant information to the auditor.

Clearly defining these responsibilities fosters a collaborative environment and emphasizes the client’s active involvement in the audit process.

c) Expectation of Receiving a Written Management Representation Letter:

Mentioning the expectation of receiving a management representation letter in the engagement letter is essential. This letter is a formal statement from management to the auditor, confirming the accuracy and completeness of the financial information provided during the audit.

Including this reference ensures that the client understands the requirement and facilitates the smooth flow of information between the auditor and the client’s management.

Each of these components limitations of auditing, responsibilities of management, and the expectation of a management representation letter are vital inclusions within the engagement letter as they serve to set clear expectations, establish the framework for collaboration, and ensure a comprehensive understanding between the auditor and the client regarding the audit process and its requirements.

Related Posts

• An auditor who accepts an audit but does not possess the industry expertise of the business entity should
• Which of the following statements is not true about continuous audit?