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

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 between the audit firm and the client. It serves as a contract between the two parties and outlines the scope of the audit, responsibilities of each party, and fees to be charged.

Answer D is incorrect, as the Trade Practices Act does not require engagement letters specifically, but rather written contracts for professional services generally. Answer A is also incorrect, as the purpose of an engagement letter is not to facilitate personnel scheduling, but rather to clarify the terms of the engagement. Answer B is incorrect, as an engagement letter does not reduce the audit firm's responsibility to external users of the audited financial statements, but rather outlines the scope of the audit and the responsibilities of the auditor.

What Is the Purpose of an Engagement Letter