Terms of Engagement

Question 1

what is responsibility of audit committee?

Answer 1

the audit committee responsible for the selection and appointment of the independent external auditor and reviewing the nature and scope of the engagement

Question 2

what factors an audit firm should assess for client acceptance and continue?

Answer 2

• Firm’s ability to meet reporting deadlines
• Firm’s ability to staff the engagement
• Independence
• Integrity of client management (serious issue)
• Group audits

Question 3

what are management’s responsibilities?

Answer 3

1. for preparation and fair presentation of the FSs
2. for the design, implementation, and maintenance of internal control

Question 4

what circumstances is an accountant precluded (prevent) from issuing a compilation report or a review report?

Answer 4

1. the accountant has been engaged to audit the entity’s FS and has been prohibited by client from corresponding with entity’s legal counsel
2. the accountant has been engaged to audit or review the entity’s FS and client does not provide the accountant with a signed representation letter

Question 5

When is a management representation letter obtained?

Answer 5

until the end of the audit

Question 6

what inquiries should a successor auditor ask predecessor prior to accepting an audit engagement?

Answer 6

• facts known to the predecessor auditor that might bear on the management’s integrity
• predecessor’s understanding of the reasons for the change of auditors
• disagreements between predecessor auditor and management as to significant accounting policies and principles

Question 7

what are the considerations before an accountant agrees to a request for a change from audit to review/compilation or a review to a compilation?

Answer 7

1. the reason for the request, especially if there are scope limitations
2. the effort required to complete the engagement
3. the estimated additional cost to complete the engagement

if the request for a change is appropriate, the review/compilation report should not refer to:
- the original engagement
- any procedures performed as part of the engagement
- any scope limitation