Chapter 03 Problem 28 LO 3-3, 3-4

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A CPA has been asked to audit the financial statements of a publicly held company for the first time. All preliminary verbal discussions and inquiries among the CPA, the company, the predecessor auditor, and all other necessary parties have been completed. The CPA is now preparing an engagement letter.

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

Check All That Apply Arrangements involving the use of specialists or internal auditors. 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.) Additional services to be provided relating to regulatory requirements. Arrangements regarding other services (e.g., assurance, tax, or consulting services). A list of the services to be provided by the auditor during the engagement. An explanation of how the services will be provided by the auditor as well as the objectives of each service. An explanation of the potential risks and limitations of the services to be provided. Arrangements for when the auditor will inform 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 to be provided. A statement specifying the standards used to conduct the specified services. An explicit statement that the financial statements and other included information are the responsibility of the auditor. 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. A statement providing absolute assurance that the audit will detect errors and fraud that have a material effect on the financial statements. A specific list of items which will not be shared with the audit committee