Answer the following:
- What is unique about a partnership public accounting practice as a job opening for a CPA compared to the others (private firms, government, and education)?
- What is the primary objective of the audit engagement letter? Give 2 possible reasons why the auditor should be initiating the audit engagement letter. Why should the audit engagement letter be renewed periodically? See the pictures for the basis of this question.
29 TERMS OF AUDIT ENGAGEMENT The auditor and the client should agree on the terms of the audit engagement. The agreed terms would need to be recorded in an audit engagement letter (see pp. 27-28) or other suitable form of contract. It is in the interest of both client and auditor that the auditor sends an engagement letter, preferably before the commencement of the engagement, to help in avoiding misunderstandings with respect to the engagement. The engagement letter documents and confirms the auditor's acceptance of the appointment, the objective and scope of the audit, the extent of the auditor's responsibilities to the client, and the form of any reports. Principal Contents The form and content of audit engagement letters vary for each client, but they would generally include reference to: 1. The objective of the audit of financial statements. 2. Management's responsibility for the financial statements as described in PSA 200. 3. The financial reporting framework adopted by management in preparing the financial statements. 4. The scope of the audit, including reference to applicable legislation, regulations, or pronouncements of professional bodies to which the auditor adheres. 5. The form of any reports or other communication of results of the engagement. 6. The fact that because of the test nature and other inherent limitations of an audit, together with the inherent limitations of any accounting and internal control system, there is an unavoidable risk that even some material misstatement may remain undiscovered. 7. Unrestricted access to whatever records, documentation and other information requested in connection with the audit. 8. The auditor may also wish to include in the letter: a. Arrangements regarding the planning of the audit. b. Expectation of receiving from management written confirmation concerning representations made in connection with the audit. c. Request for the client to confirm the terms of the engagement by acknowled- ging receipt of the engagement letter.30 d. Description of any other letters or reports the auditor expects to issue to the client. e. Basis on which fees are computed and the billing arrangements. 9. When relevant the following points could also be made: a. Arrangements concerning the involvement of other auditors and reports in some aspects of the audit. b. Arrangements concerning the involvement of internal auditors and other client staff. c. Arrangements to be made with the predecessor auditor, if any, in the case of an initial audit. d. Any restriction of the auditor's liability when such possibility exists. 2. A reference to any further agreement between the auditor and the client. Recurring Audits On recurring audits, the auditor should consider whether circumstances require the terms of the engagement to be revised and whether or not there is a need to remind the client of the existing terms of the engagement. The auditor may wish to send a new engagement letter each period. However, the following factors may make it appropriate to send a new letter: 1. Any indication that the client misunderstands the objective and scope of the audit. 2. Any revised or special terms of the engagement. 3. A recent change of senior management, board of directors, or ownership. 4. A significant change in nature or size of the client's business. 5. Legal requirements. 6. A change in the financial reporting framework adapted by management in preparing the financial statements.le from his salary compensation will share in the profits of the firm. If the accounting firm is a single practitioner, naturally as sole owner he gets all the profits, but suffers also all the losses. SAMPLE AUDIT ENGAGEMENT LETTER To the Board of Directors ILOVEYOUCORPORATION Manila You have requested that we audit the financial statements of ILOVEYOU CORPORATION which comprise the balance sheet as of December 31, 2020, and the income statement, statement of changes in equity, and cash flow statement for the year then ended, and a summary of significant accounting policies and other explanatory notes. We are pleased to confirm our acceptance and our understanding of this engagement by means of this letter. Our audit will be conducted with the objective of our expressing an opinion on the financial statements. We will conduct our audit in accordance with Philippine Standards on Auditing. Those Standards require that we comply with ethical requirements and plan and perform the audit to obtainreasonable assurance whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. Because of the test nature and other inherent limitations of an audit, together with the inherent limitations of any accounting and internal control system, there is an unavoidable risk that even some material misstatements may remain undiscovered. In making our risk assessments, we consider internal control relevant to the entity's preparation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing any opinion on the effectiveness of the entity's internal control. However, we expect to provide you with a separate letter concerning any material weaknesses in the design or implementation of internal control over financial reporting that come to our attention during the audit of the financial statements. We remind you that the responsibility for the preparation of the financial statements that present fairly the financial position, financial performance and cash flows of the company in accordance with Philippine Financial Reporting Standards is that of the management of the company. Our auditors' report will explain that management is responsible for the preparation and the fair presentation of the financial statements in accordance with the applicable financial reporting framework and this responsibility includes: Designing, implementing and maintaining internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Selecting and applying appropriate accounting policies; and . Making accounting estimates that are appropriate in the circumstances. As part of our audit process, we will request from management written confirmation concerning representations made to us in connection with the audit. We look forward to full cooperation from your staff and we trust that they will make available to us whatever records, documentation and other information are requested in connection with our audit. In consideration for our services, we propose to bill you as follows: 1. Monthly retainer P50,000 2. Upon submission of the annual audit report P100,000 Please sign and return the attached copy of this letter that it is in accordance with your understanding of the arrangements for our audit of the financial statements. CONFORME: Very truly yours, De Los Reyes & Associates July 23, 2020 CPAs
