Question
You are a member of your audit firms quality assurance team. The firm has recently been appointed as the auditors of Windmill Ltd, a company
You are a member of your audit firms quality assurance team. The firm has recently been appointed as the auditors of Windmill Ltd, a company which manufactures a large range of diving and hang-gliding equipment.
The company has been in operation for twenty years. The audit is not complicated as the systems are well established and the staff generally competent. One complication is that before any of the companys diving equipment can be sold, it must be rigorously quality control tested for safety purposes. In prior years, all year-end inventory has been tested by an independent expert to ensure that it is saleable. The company has an internal audit department. No other services will be rendered to Windmill Ltd.
Having satisfactorily concluded the preliminary engagement activities in terms of ISA 220 and ISQC 1, the manager in charge of the audit requested a trainee to draft an engagement letter. The following engagement letter was provided by the trainee:
The Sharelolders
Windmill Ltd
18 Richards Ave
Whakatane
To the Chairman Having carried out the preliminary investigation into your company, we are pleased to record our acceptance of the appointment as auditors and hereby confirm the terms of the engagement.
1. We will conduct the 30 August year-end audit for which we have been appointed
2. The engagement will end by 31 September
3. Our role is to certify the fair presentation of the financial statements
4. Your role as management will be to provide our staff with all the information we require to gather sufficient, appropriate audit evidence of fair presentation
5. We do not guarantee an unqualified audit report as auditing does have its limitations
6. Fees will be a matter of negotiation, but will be based on prior years
Please would you sign this letter, retain a copy, and return the original to us.
I look forward to working on your audit.
Signed:.
Audit manager
REQUIRED: Identify any weaknesses in this letter. You are not required to re-draft the letter.
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