The purpose of an engagement letter is to:
A) satisfy the Trade Practices Act which requires that contracts for professional services must be in writing to be enforceable.
B) record the terms of the engagement in writing in order to minimise misunderstandings.
C) notify the audit staff of an upcoming engagement so that personnel scheduling can be facilitated.
D) reduce the audit firm's responsibility to external users of the audited financial statements.

Question

Quizplus · Accepted Answer

The purpose of an engagement letter is to record the terms of the engagement in writing in order to minimise misunderstandings. It outlines the nature and scope of the work to be performed, the responsibilities of both the auditor and the client, and the expected timeline and fees of the engagement. This helps to ensure that both parties have a clear understanding of their respective obligations and reduces the likelihood of disagreements or legal disputes later on. While an engagement letter may be required by law or professional standards in some cases, its primary purpose is to serve as a communication tool and risk management tool for the auditor and client.

The Purpose of an Engagement Letter Is To