Question

Which of the following statements best represents the reason why auditors prepare engagement letters to be signed by their auditees?

a) To ensure confidentiality between the auditor and auditee.
b) To provide a formal agreement on audit procedures and responsibilities.
c) To request payment for audit services upfront.
d) To restrict access to audit findings.

Answer 1

An engagement letter is prepared by auditors for their auditees to formalize the agreement on audit procedures and responsibilities, which sets the foundation for the audit process.

Step-by-step explanation:

The question addresses the purpose of an engagement letter in an audit context. The best statement that represents the reason why auditors prepare engagement letters to be signed by their auditees is to provide a formal agreement on audit procedures and responsibilities. This is because an engagement letter serves as a contract outlining the scope of the audit, the objectives, timing, the extent of the auditors' responsibilities, and the expected form of the reports to be delivered. It does not primarily ensure confidentiality, request payment upfront, or restrict access to audit findings, although it may reference terms related to these points.