[Anonymous]

While taking a stab at a couple MCQs, I came across the following and DESPERATELY NEED to understand why I was wrong:

AU-C 210.10 (“Agreement on Audit Engagement Terms”) requires a CPA to establish an understanding with the client for each engagement and outline the details of that understanding. The understanding should address certain areas. These areas do not include:

A.the objective and scope of the engagement.
B.the responsibilities of management.
C.the fee for the engagement.
D.the limitations of the engagement.

The answer is C. I chose D. If I’m not mistaken, the engagement letter provides everything EXCEPT for the limitations of the engagement, right? Please advise.

Here is the answer rationale.
The letter must address the objectives of the engagement, the responsibilities of management, the responsibilities of the practitioner, the limitations of the engagement, identification of the applicable financial reporting framework, and reference to the expected form and content of any reports to be issued by the auditor. In addition, information about fees and billing may be included but is not required.

Hill, CPA, has been retained to audit the financial statements of Monday Co. Monday’s predecessor auditor was Post, CPA, who has been notified by Monday that Post’s services have been terminated. Under these circumstances, which party should initiate the communications between Hill and Post?

A.Hill, the successor auditor
B.Post, the predecessor auditor
C.Monday’s controller or CFO
D.The chairman of Monday’s board of directors

The answer is A. I chose C. I thought that management has to authorize the predecessor to allow the successor to review the predecessor’s documentation and respond fully to inquiries by the successor.
Here is the answer rationale:
Per AU-C 210.A27, “An auditor may make a proposal for an audit engagement before being granted permission to make inquiries of a predecessor auditor. The auditor may advise management in the proposal or otherwise that the auditor’s acceptance of the engagement cannot be final until the inquiries have been made….”

Thus, Hill, the successor auditor, should request permission from Monday, the client, to make certain specific inquiries of Post, the predecessor auditor. Inquiry of the predecessor auditor is “a necessary procedure because the predecessor auditor may be able to provide the successor with information that will assist in determining whether to accept the engagement.” Such information may concern the integrity of the entity’s management, disagreements with management, and the predecessor’s understanding of why the client is changing auditors.

I'm tired of operating in fear and mediocrity. It's time to try. It's time to do. It's time to go.

[RandomRandy]

Q1: Limitations are included in the Engagement Letter. The Fees are the only optional part of that list of choices.

Q2: Hill needs permission to talk with the predecessor auditor, but he will also but the first person to approach the predecessor auditor once approval is given.

FAR: 74 1/15/16, 72 7/2/16 -_-
BEC: TBD
REG: TBD
AUD: TBD

"Nothing is impossible to him who will try" - Andy Bernard

[Anonymous]

Thank you very much!

I'm tired of operating in fear and mediocrity. It's time to try. It's time to do. It's time to go.

[Author]

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