ExpertMedium1 markMultiple Choice
CPA · Question 04 · Area 1: Ethics
An auditor is establishing an understanding with a client regarding the services to be performed for a non-issuer. Which of the following must be included in the engagement letter?
An auditor is establishing an understanding with a client regarding the services to be performed for a non-issuer. Which of the following must be included in the engagement letter?
Answer options:
A.
A guarantee that the auditor will detect all material errors and fraud.
B.
A statement that because of the inherent limitations of an audit, together with the inherent limitations of internal control, an unavoidable risk exists that some material misstatements may not be detected.
C.
A detailed list of all specific audit procedures to be performed during the engagement.
D.
A statement that management is responsible for the selection of the independent auditor.
How to approach this question
Recall the mandatory contents of an engagement letter (AU-C 210). Focus on the limitations of the audit.
Full Answer
B.A statement that because of the inherent limitations of an audit, together with the inherent limitations of internal control, an unavoidable risk exists that some material misstatements may not be detected.✓ Correct
A statement that because of the inherent limitations of an audit, together with the inherent limitations of internal control, an unavoidable risk exists that some material misstatements may not be detected.
AU-C 210 requires the engagement letter to include the objective and scope of the audit, responsibilities of the auditor, responsibilities of management, and a statement about the inherent limitations of an audit and internal control (unavoidable risk).
Common mistakes
Thinking the engagement letter includes the detailed audit program or guarantees of fraud detection.
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