Final answer:
Option a is the correct answer. The correct statement regarding engagement letters is that the agreed-upon terms of the audit engagement should be documented in an engagement letter or other suitable form of a written agreement.
Step-by-step explanation:
The correct statement regarding engagement letters is option a. The agreed-upon terms of the audit engagement should be documented in an engagement letter or other suitable form of a written agreement.
Engagement letters are an important part of the audit process as they outline the scope of the work, the responsibilities of both the auditor and the client, and the fees and payment terms. By documenting these terms in a written agreement, it helps to prevent misunderstandings and provides a clear understanding of the audit engagement.
While engagement letters are required for most audit engagements, option b is incorrect. The requirement for engagement letters may vary depending on the jurisdiction and the nature of the engagement, but they are not required annually for every engagement.
Option c is also incorrect. While it is important to discuss the terms of the engagement with the client and document it in the audit file, a formal engagement letter is still necessary to provide a legally binding agreement that protects both parties involved in the audit.
Lastly, option d is incorrect. While a multiyear engagement letter may be used to cover multiple years, it does not exempt the need for other actions. The terms of the engagement may still need to be reviewed and updated annually to ensure they reflect any changes in circumstances or requirements.