Question Tag: Engagement letter

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AA – Nov 2024 – L2 – Q1b – Engagement Letter Contents

Explains the key contents of an audit engagement letter, highlighting the responsibilities and scope of an audit.

Question

A firm or individual having accepted an appointment as an auditor of a client company shall submit an engagement letter to the board of directors of the client company. The engagement letter can be seen as the basis for the contract between the company and the auditor.

Required:
In relation to the above statement, state and explain FIVE contents of the engagement letter.

Answer

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Tags: Audit Contract, Audit Scope, Auditor Responsibilities, Client Expectations, Engagement letter, IAASB, Professional Ethics
Level: Level 2

Topic: Professional and Ethical Considerations
Series: Nov 2024

AAA – May 2021 – L3 – Q4 – Advanced Audit Planning and Strategy

Discussion of engagement letter elements, reasons for rejecting an engagement, procedures for new client acceptance, and opening balances audit.

Question

As a Senior Manager in Inagbe and Co. (Chartered Accountants), you act as a mentor to some of the young auditors in practice. As a mentor, you discuss frequently with your young mentees on professional and personal matters. Zainab Nigeria Limited is a cosmetics company and has just recently appointed Inagbe and Co. as its auditor. One of your young mentees has been asked to be part of the engagement team. The mentee has come to you for some advice and you decided to use the opportunity to explain the process and procedures to be carried out when accepting a new engagement.

Required:

(a) Explain the elements of an engagement letter. (7 Marks)
(b) Discuss the circumstances under which an auditor may reject an audit engagement. (3 Marks)
(c) Discuss the procedures that an audit firm needs to carry out before accepting to audit a new client. (4 Marks)
(d) Explain the audit procedures that should be carried out on opening balances. (6 Marks)

Answer

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Tags: Audit Acceptance, Audit Procedures, Engagement letter, Opening Balances
Level: Level 3

Topic: Advanced Audit Planning and Strategy

AAA – Nov 2022 – L3 – SB – Q2 – Audit of Complex Entities

Evaluate auditors' responsibilities in fraud detection, financial misreporting, and appropriate audit procedures to mitigate misstatements.

Question

The Financial Controller (FC) of Poki Limited made an observation on the draft engagement letter sent by the external auditors to the company, an extract of which is as stated below:

“The responsibility for safeguarding the assets of the company and for the prevention and detection of fraud, error, and non-compliance with laws or regulations rests with the company’s directors. In accordance with auditing standards, we shall endeavor to plan our audit so that we have a reasonable expectation of detecting material misstatements in the financial statements or accounting records (including any material misstatements resulting from fraud, error, or non-compliance with laws or regulations). However, because any internal control structure, no matter how effective, cannot eliminate the possibility that errors or irregularities may occur and remain undetected and because we use selective testing in our audit, we cannot guarantee that errors or irregularities, if present, will be detected. Accordingly, our audit should not be relied upon to disclose all such material misstatements or frauds, errors, or instances of non-compliance as may exist. The best safeguard against irregularities and fraud is a sound system of internal control.”

The FC accused the auditors of running away from their responsibilities of exposing to the owners of the company fraudulent financial reporting and misappropriation of assets. To him, what is the purpose of audit when fraud and errors could not be discovered? He has threatened to discuss with the Board of Directors and insists that the engagement letter will not be signed until those sections are removed. You are a senior member of the audit team.

Required:

a. Outline the objectives of auditors in relation to fraud. (6 Marks)

b. Explain fraudulent financial reporting and misappropriation of assets. (7 Marks)

c. State the procedures auditors should perform to identify the risks of material misstatement due to fraud. (7 Marks)

Answer

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Tags: Audit Responsibilities, Corporate Governance, Engagement letter, Fraud Detection, Misappropriation, Risk Identification
Level: Level 3

Topic: Audit of Complex Entities
Series: NOV 2022

AA – Nov 2022 – L2 – Q3 – Terms of Audit Engagement

Covers engagement letters, contents, benefits, and ISA 210 requirements for auditor appointment.

Question

ISA 210, Agreeing the Terms of Audit Engagements, requires that the auditor needs to agree the terms of audit engagement prior to commencement of work.

Required:
a. What is an engagement letter? (2 Marks)
b. Highlight EIGHT major items expected to be found in a typical audit engagement letter. (8 Marks)
c. State FIVE advantages of an engagement letter. (5 Marks)
d. State FIVE requirements of ISA 210 with respect to the preconditions for accepting appointment as an auditor. (5 Marks)

Answer

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Tags: Audit Engagement Terms, Audit Preconditions, Auditor appointment, Engagement letter, ISA 210
Level: Level 2

Topic: Agreeing the Terms of Audit Engagements (ISA 210)
Series: NOV 2022

AA – Nov 2016 – L2 – Q2c – Audit Documentation

This question details the elements that must be included in an engagement letter issued to a new audit client, covering responsibilities, terms, and scope of the audit.

Question

Discuss in detail the content of an engagement letter to be issued to a new client.

Answer

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Tags: Audit Scope, Audit Terms, Auditor-Client Agreement, Engagement letter, Legal obligations, Responsibilities
Level: Level 2

Topic: Audit Documentation
Series: NOV 2016

AA – Nov 2020 – L2 – Q5a – Regulatory Framework and Audit Responsibilities

Explain the purpose of an engagement letter and key information it should contain.

Question

ISA 210: Agreeing the terms of audit engagements requires that auditors should issue a letter of engagement before commencement of the audit.

Required:
i) What is the purpose of an engagement letter?
(1 mark)

ii) Identify FOUR (4) important pieces of information that the engagement letter should contain.
(4 marks)

Answer

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Tags: Audit Objectives, Audit Terms, Engagement letter, ISA 210, Responsibilities

Topic: Regulatory Framework and Audit Responsibilities
Series: NOV 2020

AA – Nov 2021 – L2 – Q5a – Professional and Ethical Considerations, Engagement Letters

Explains four key terms to be included in an engagement letter in accordance with ISA 210.

Question

SA 210: Agreeing to the terms of an engagement states that Engagement Letters are issued to serve as contracts between clients and auditors.

Required:
Justify FOUR (4) terms that could be included in an Engagement Letter in accordance with ISA 210.

Answer

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Tags: Audit Engagement, Auditor Responsibilities, Client Responsibilities, Engagement letter, ISA 210
Level: Level 2

Series: NOV 2021

AAA – Mar 2024 – L3 – Q1b – The regulatory environment, Practice management, The audit approach

Discussion of issues with an audit engagement letter for Kumanji Ltd in accordance with ISA 210.

Question

Ayesu & Associates, a reputable auditing firm, was approached by Kumanji Ltd to conduct an annual financial audit for the fiscal year ending December 31, 2023. Below is the audit engagement letter.

Re: Engagement Letter for the Audit of Financial Statements of Kumanji Ltd

We are pleased to confirm the terms of our engagement for the audit of your financial statements for the year ended December 31, 2023. This letter will serve as our agreement with Kumanji Ltd and outlines the scope of our services, responsibilities, and fee structure. Please review this letter carefully and let us know if you have any questions or concerns.

Audit Period: The audit will cover the financial statements of Kumanji Ltd for the fiscal year beginning January 1, 2023, and ending on March 31, 2023.

Audit Fees: Our fee structure will be based on a fixed fee of GH¢5,000 for the audit, payable in two installments. The first installment of GH¢2,500 will be due at the commencement of the audit, and the remaining GH¢2,500 will be due upon completion of the audit.

Timeline for Reporting: We will deliver the audit report and financial statements to you within two months after the conclusion of our fieldwork.

Conflicts of Interest: We do not anticipate any conflicts of interest that may affect our independence or objectivity during the audit. If any conflicts arise, we will address them promptly.

Audit Scope: We will perform audit procedures in accordance with Generally Accepted Auditing Standards (GAAS) to obtain reasonable assurance about whether the financial statements are free from material misstatement. Specific audit procedures will be determined during the audit process.

Contingency Plan: We do not have a contingency plan in place for unexpected disruptions or events that may affect the audit process.

Please acknowledge your agreement to the terms outlined in this letter by signing and returning a copy to us at your earliest convenience. If you have any questions or require clarification on any aspect of this engagement, do not hesitate to contact us.

We look forward to working with you and providing high-quality audit services to Kumanji Ltd. Thank you for entrusting us with this important engagement.

Required:
In accordance with ISA 210: Agreeing the terms of audit engagements, discuss FIVE (5) issues with the engagement letter. (10 marks)

Answer

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Tags: Audit Engagement, Audit Planning, Engagement letter, ISA 210
Level: Level 3

Topic: Practice management, The audit approach, The regulatory environment
Series: MAR 2024

Nov 2018 – L3 – Q2a – Practice management, Professional responsibility and liability

Explanation of how an audit firm would organize audit work to reduce self-review threat.

Question

A medium-sized fast-growing company owned by the Basoah Family approached Fast and Easy Accounting Firm (FFAF) and explained that they want to change their auditors to a firm that can provide a broader range of services and support than what they receive from their current auditors. They have asked that FFAF should perform the following roles as auditors of the company if they are engaged:

Supervision of the company’s routine bookkeeping and payroll systems which will be outsourced to render the present bookkeeping and payroll staff redundant.
FFAF would then employ the redundant staff and use them to perform the bookkeeping and payroll tasks.
The company would continue to provide office space for these members of staff, but they would be employed and supervised by FFAF.
The company will, however, continue to prepare financial statements. They will prepare the financial statements from the trial balance generated by the computerized bookkeeping package provided by FFAF.
The company is determined to have a good quality service, both from the bookkeeping function and from the external audit, and they are ready to pay a realistic audit fee to maintain FFAF as their External Auditors.

Required:
Assuming that FFAF accepts this appointment, explain how the firm would organize its audit work to ensure that the associated self-review threat is reduced to an acceptable level. (10 marks)

Answer

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Tags: Audit Independence, Engagement letter, Self-review threat
Level: Level 3

Topic: Practice management, Professional responsibility and liability
Series: NOV 2018

AA – Nov 2024 – L2 – Q1b – Engagement Letter Contents

Explains the key contents of an audit engagement letter, highlighting the responsibilities and scope of an audit.

Question

Required:
In relation to the above statement, state and explain FIVE contents of the engagement letter.

Answer

Find Related Questions by Tags, levels, etc.

Tags: Audit Contract, Audit Scope, Auditor Responsibilities, Client Expectations, Engagement letter, IAASB, Professional Ethics
Level: Level 2

Topic: Professional and Ethical Considerations
Series: Nov 2024

AAA – May 2021 – L3 – Q4 – Advanced Audit Planning and Strategy

Discussion of engagement letter elements, reasons for rejecting an engagement, procedures for new client acceptance, and opening balances audit.

Question

Required:

Answer

Find Related Questions by Tags, levels, etc.

Tags: Audit Acceptance, Audit Procedures, Engagement letter, Opening Balances
Level: Level 3

Topic: Advanced Audit Planning and Strategy

AAA – Nov 2022 – L3 – SB – Q2 – Audit of Complex Entities

Evaluate auditors' responsibilities in fraud detection, financial misreporting, and appropriate audit procedures to mitigate misstatements.

Question

The Financial Controller (FC) of Poki Limited made an observation on the draft engagement letter sent by the external auditors to the company, an extract of which is as stated below:

Required:

a. Outline the objectives of auditors in relation to fraud. (6 Marks)

b. Explain fraudulent financial reporting and misappropriation of assets. (7 Marks)

c. State the procedures auditors should perform to identify the risks of material misstatement due to fraud. (7 Marks)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Audit Responsibilities, Corporate Governance, Engagement letter, Fraud Detection, Misappropriation, Risk Identification
Level: Level 3

Topic: Audit of Complex Entities
Series: NOV 2022

AA – Nov 2022 – L2 – Q3 – Terms of Audit Engagement

Covers engagement letters, contents, benefits, and ISA 210 requirements for auditor appointment.

Question

ISA 210, Agreeing the Terms of Audit Engagements, requires that the auditor needs to agree the terms of audit engagement prior to commencement of work.

Answer

Find Related Questions by Tags, levels, etc.

Tags: Audit Engagement Terms, Audit Preconditions, Auditor appointment, Engagement letter, ISA 210
Level: Level 2

Topic: Agreeing the Terms of Audit Engagements (ISA 210)
Series: NOV 2022

AA – Nov 2016 – L2 – Q2c – Audit Documentation

This question details the elements that must be included in an engagement letter issued to a new audit client, covering responsibilities, terms, and scope of the audit.

Question

Discuss in detail the content of an engagement letter to be issued to a new client.

Answer

Find Related Questions by Tags, levels, etc.

Tags: Audit Scope, Audit Terms, Auditor-Client Agreement, Engagement letter, Legal obligations, Responsibilities
Level: Level 2

Topic: Audit Documentation
Series: NOV 2016

AA – Nov 2020 – L2 – Q5a – Regulatory Framework and Audit Responsibilities

Explain the purpose of an engagement letter and key information it should contain.

Question

ISA 210: Agreeing the terms of audit engagements requires that auditors should issue a letter of engagement before commencement of the audit.

Required:
i) What is the purpose of an engagement letter?
(1 mark)

ii) Identify FOUR (4) important pieces of information that the engagement letter should contain.
(4 marks)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Audit Objectives, Audit Terms, Engagement letter, ISA 210, Responsibilities

Topic: Regulatory Framework and Audit Responsibilities
Series: NOV 2020

AA – Nov 2021 – L2 – Q5a – Professional and Ethical Considerations, Engagement Letters

Explains four key terms to be included in an engagement letter in accordance with ISA 210.

Question

SA 210: Agreeing to the terms of an engagement states that Engagement Letters are issued to serve as contracts between clients and auditors.

Required:
Justify FOUR (4) terms that could be included in an Engagement Letter in accordance with ISA 210.

Answer

Find Related Questions by Tags, levels, etc.

Tags: Audit Engagement, Auditor Responsibilities, Client Responsibilities, Engagement letter, ISA 210
Level: Level 2

Series: NOV 2021