Upon completion of this chapter you will understand the auditor's requirements for client acceptance and continuance, understand the steps that are involved in the preliminary engagement activities, know what is required to establish an understanding with the client, know the types of information that are included in an engagement letter,. | Chapter 3 Audit Planning, Types of Audit Tests, and Materiality McGraw-Hill/Irwin Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved. The Phases of an Audit That Relate to Audit Planning LO# 1 3- Preliminary Engagement Activities Determine the Audit Engagement Team Requirements Assess Compliance with Ethical Requirements, Including Independence LO# 2 3- Establish Terms of the Engagement The terms of the engagement, which are documented in the engagement letter, should include the objectives of the engagement, management’s responsibilities, the auditor’s responsibilities, and the limitations of the engagement. Who signs the engagement letter? In establishing the terms of the engagement, three topics must be discussed: The engagement letter; Using the work of the internal auditors; and The role of the audit committee. LO# 3 3- The Engagement Letter The engagement letter formalizes the arrangement reached between the auditor and the client. In addition to the items mentioned in the sample engagement letter in Exhibit 3-1 in the textbook, the engagement letter may include: Arrangements for use of specialists or internal auditors. Any limitations of liability of the auditor or client. Additional services to be provided. Arrangements regarding other services. LO# 4 3- Internal Auditors LO# 5 3- The Audit Committee Subcommittee of the board of directors No specific requirements for privately held companies Section 301 of Sarbanes-Oxley Act requires the following for audit committee members of publicly held companies: Member of board of directors and independent. Directly responsible for overseeing work of any registered public accounting firm employed by the company. Must preapprove all audit and nonaudit services provided by its auditors. Must establish procedures to follow for complaints. Must have authority to engage independent counsel. LO# 6 3- Planning the Audit When preparing the audit . | Chapter 3 Audit Planning, Types of Audit Tests, and Materiality McGraw-Hill/Irwin Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved. The Phases of an Audit That Relate to Audit Planning LO# 1 3- Preliminary Engagement Activities Determine the Audit Engagement Team Requirements Assess Compliance with Ethical Requirements, Including Independence LO# 2 3- Establish Terms of the Engagement The terms of the engagement, which are documented in the engagement letter, should include the objectives of the engagement, management’s responsibilities, the auditor’s responsibilities, and the limitations of the engagement. Who signs the engagement letter? In establishing the terms of the engagement, three topics must be discussed: The engagement letter; Using the work of the internal auditors; and The role of the audit committee. LO# 3 3- The Engagement Letter The engagement letter formalizes the arrangement reached between the auditor and the .
