An auditor is preparing an engagement letter for the audit of a nonissuer. Which of the following is a REQUIRED component of the engagement letter under AU-C 210?

Answer options:

Identification of the applicable financial reporting framework for the preparation of the financial statements.

A list of all audit procedures to be performed.

A guarantee that all material fraud will be detected.

The specific materiality levels to be used.

How to approach this question

Engagement Letter = The Contract. It defines the Rules of the Game (Framework), Responsibilities (Mgmt vs Auditor), and Fees.

Full Answer

A.Identification of the applicable financial reporting framework for the preparation of the financial statements.✓ Correct

AU-C 210 requires the engagement letter to include: (1) the objective and scope of the audit, (2) responsibilities of the auditor, (3) responsibilities of management, (4) identification of the applicable financial reporting framework, and (5) reference to the expected form and content of reports.

Common mistakes

Thinking the letter includes specific audit details (procedures/materiality). It's a high-level contract.

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