Question

The purpose of an engagement letter is to:

A) document the CPA firm's responsibility to external users of the audited financial statements.
B) document the terms of the engagement.
C) notify the audit staff of an upcoming engagement so that personnel scheduling can be facilitated.
D) emphasize management's responsibility for approving the audit program.

Answer 1

An engagement letter is used to document the terms of the agreement between a CPA firm and their client, setting expectations for the audit engagement.

Step-by-step explanation:

The purpose of an engagement letter is to document the terms of the engagement between the CPA firm and its client. This formal agreement outlines the scope of work, the responsibilities of both parties, the limitations of the audit, the timeline, and the fees for the services to be provided. It does not primarily document the CPA firm's responsibility to external users, notify audit staff for scheduling, or highlight management's role in approving the audit program. Rather, it serves to set clear expectations and prevent misunderstandings by clarifying what the audit will involve.