Establish an Understanding with the Entity The auditor should establish an understanding with the entity about the terms of the engage- ment. This understanding reduces the risk that either party may misinterpret what is expected or required of the other party.
The terms of the engagement, which are documented in the engagement letter, shoul
Establish an Understanding with the Entity The auditor should establish an understanding with the entity about the terms of the engage- ment. This understanding reduces the risk that either party may misinterpret what is expected or required of the other party. The terms of the engagement, which are documented in the engagement letter, should include the objectives of the engagement, management’s responsi- bilities, the auditor’s responsibilities, and the limitations of the engagement. In establishing an understanding with the client, three topics should be discussed: (1) the engagement letter, (2) using the work of the internal auditors, and (3) the role of the audit committee.
The Engagement Letter Auditing standards state that the auditor should document the understanding through a written communication with the entity. An engagement letter is used to formalize the arrangements reached between the auditor and the entity. This letter serves as a contract, outlining the responsibilities of both parties and preventing misunderstandings between the two parties. Exhibit 3–1 shows a sample engagement letter for EarthWear.
LO 3-3
LO 3-4
Final PDF to printer
d include the objectives of the engagement, management’s responsi- bilities, the auditor’s responsibilities, and the limitations of the engagement. In establishing an understanding with the client, three topics should be discussed: (1) the engagement letter, (2) using the work of the internal auditors, and (3) the role of the audit committee.
The Engagement Letter Auditing standards state that the auditor should document the understanding through a written communication with the entity. An engagement letter is used to formalize the arrangements reached between the auditor and the entity. This letter serves as a contract, outlining the responsibilities of both parties and preventing misunderstandings between the two parties. Exhibit 3–1 shows a sample engagement letter for EarthWear.
LO 3-3
LO 3-4
Final PDF to printer