Asis, Yllar Yjeco C.

BSA 3A Auditing

CASE 2

A. List the items that should be included in the typical engagement letter.

1. Identification
2. Scope of services
3. Period of engagement
4. Fee structure
5. Responsibilities
6. Professional standards
7. Confirmation of terms

B. Describe the benefits derived from preparing an engagement letter.

1. Reduction of misunderstandings
Engagement letters provide clarity to both parties concerning the complete engagement process.
The guesswork is taken out since the agreement specifically states the responsibilities,
limitations, fees, and other details of the engagement.
 
2. Legally binding agreements
Since engagement letters are legally binding, it is possible to seek damages if the other party
does not abide by their agreed-upon obligations. It reduces counter-party risk.
 
3. Setting of expectations
Engagement letters set expectations for both the client and the party providing the service, it
specifies the exact service or task to be performed by the firm and the information to be provided
by the client. All engagement letters also generally contain various deadlines for each sub-task.

4. Client gets the reassurance of knowing when a service will be completed, and how much it
will cost.

C. Who should prepare and sign the engagement letter?

The auditor prepares the engagement letter and to be signed by both the auditor and the client.

D. Why should the engagement letter be sent?

The engagement letter should be sent because it is important to know both the auditor and the
client their agreement about their respective responsibilities and all that is included in the
engagement letter.

E. Why should the engagement letter be renewed periodically?

Regardless of the expected duration, the content of engagement letters should be reviewed on an
annual basis to determine if there are any changes in the services to be rendered. In situations
where services to change, a new engagement letter or a supplemental letter should be obtained.