Question

Which of the following items should be included in the typical engagement letter under these circumstances? (Select all that apply.)

Check All That Apply
A.Arrangements involving the use of specialists or internal auditors.
B.Any limitation of the liability of the auditor or client, such as indemnification to the.auditor for liability arising from knowing misrepresentations to the auditor by management or alternative dispute resolution procedures. (Note that regulatory bodies, such as the SEC, may restrict or prohibit such liability-limiting arrangements.)
C.Additional services to be provided relating to regulatory requirements.
D.Arrangements regarding other services (e.g., assurance, tax, or consulting services).
E.A list of the services to be provided by the auditor during the engagement.
F.An explanation of how the services will be provided by the auditor as well as the objectives of each service.
G.An explanation of the potential risks and limitations of the services to be provided.
H.Arrangements for when the auditor will inform the audit committee of certain matters.
I.An explicit statement that the financial statements and other included information are the responsibility of management.
J.An explicit statement that the company's programs and controls to prevent fraud are the responsibility of management.
K.A specific estimate of the fees for the services to be provided.
L.A statement specifying the standards used to conduct the specified services.
N.An explicit statement that the financial statements and other included information are the responsibility of the auditor.
P.An explicit statement that the auditor is responsible for maintaining evidential matter related to provide reasonable support for management's assessment of the operating effectiveness of internal controls over financial reporting.
Q.A statement providing absolute assurance that the audit will detect errors and fraud that have a material effect on the financial statements.
R.A specific list of items which will not be shared with the audit committee.

Answer 1

A typical engagement letter includes elements such as arrangements for using specialists, limitations of liability, additional services required by regulatory requirements, a list of the auditor's services, objectives and methods of service provision, potential risks and limitations, communication with the audit committee, fee estimates, and audit standards used.

Step-by-step explanation:

When drafting a typical engagement letter under circumstances involving an audit or assurance services, certain elements are typically included to clarify the terms of the engagement and protect both the auditor and the client. These elements are:

• Arrangements involving the use of specialists or internal auditors.
• Potential limitations of liability of the auditor or client, such as indemnification to the auditor for liability arising from management's misrepresentations.
• Additional services related to regulatory requirements.
• Arrangements regarding other services such as assurance, tax, or consulting services.
• A list and an explanation of the services to be provided by the auditor.
• An explanation of the objectives of each service and how they will be provided by the auditor.
• An explanation of the potential risks and limitations of the services.
• Arrangements for informing the audit committee of certain matters.
• An explicit statement that the financial statements and other included information are the responsibility of management.
• An explicit statement that the company's programs and controls to prevent fraud are the responsibility of management.
• A specific estimate of the fees for the services.
• A statement specifying the standards used to conduct the services.

Items that should not be included in the engagement letter are statements that suggest the auditor is responsible for the financial statements themselves (N), the auditor is responsible for maintaining evidential matter for the operating effectiveness of internal controls (P), providing absolute assurance that the audit will detect all errors and fraud (Q), and a list of items which will not be shared with the audit committee (R).