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bigmike1202
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Posted: 04 Aug 2009 at 20:18 \| IP Logged

Wiley book, page 74 multiple-choice 76.

76. The audit program usually cannot be finalized until the

a. Consideration of the entity's internal control has been completed.
b. Engagement letter has been signed by the auditor and the client.
c. Reportable conditions have been communicated to the audit committee of the board of directors.
d. Search for unrecorded liabilities has been performed and documented.

Page 90, answer reads:

Answer (a) is correct because the consideration of internal control helps the auditor to assess control risk and to plan the audit: accordingly, the audit program is not generally finalized prior to the consideration of internal control. Answer (b) is incorrect because, while generally desirable, engagement letters are not required on audits.

Did I miss something? I thought engagement letters are required. Is this a clear-cut error by Wiley?

Thanks!

BigE
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Posted: 04 Aug 2009 at 20:28 \| IP Logged

I am thinking that the engagement letter is required before the risk assessment and consideration of internal controls. If you dont have an engagement letter you wouldnt be in the process of writing an audit program. More than likely you would have declined to accept the engagement.

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minicre
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Posted: 04 Aug 2009 at 20:37 \| IP Logged

Yea, although Wiley's reasoning makes no sense... I would think along the lines of Big E. An engagement letter is signed prior to doing anything... It is simply the contract to do the audit. If that is not signed/created, then the audit program can not be started.

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bigmike1202
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Posted: 04 Aug 2009 at 20:57 \| IP Logged

I was asking more in terms of Wiley's response for (b).

Engagement letters are required for audits. True? False?

oldog new trics
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Posted: 04 Aug 2009 at 21:19 \| IP Logged

I went searching when I read this. Becker has a pass key in it that states "AN ENGAGEMENT LETTER IS A PRESUMPTIVELY MANDATORY REQUIREMENT (I.E. IT IS REQUIRED IN MOST CIRCUMSTANCES)

This tells me it is not always required (although I don't know when that would be since I'm on ch 3). But it didn't say "its required" so there are times when it will not be required.

Also, I think its required that there be 'an understanding between auditor and client', but it doesn't necessarily have to be specifically an engagement letter. A letter of understanding could do it.

Personally, I find 40% of this stuff is word games and slight of hand.

Hope that helps.

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