Group Assignment 1G - Engagement Letter Insights | Môn Auditing - Trường Đại học Quốc tế, Đại học Quốc gia Thành phố Hồ Chí Minh

lOMoAR cPSD| 59085392 INTERNATIONAL UNIVERSITY VNU-HCM
SCHOOL OF ECONOMICS, FINANCE, AND ACCOUNTING AUDITING Instructor: Mr. Vu Tuan Anh
Progress assessment Group Assessment Report Group members: Student Name and ID Responsibility % of Contribution
1. Lê Thị Vân Nga – BAACIU21029 Do all cases 100%
2. Vương Phương Thảo – FAACIU22061 Do all cases 100%
3. Nguyễn Lê Đan Vy – BAFNIU21640 Do all cases 100%
4. Phạm Minh Dũng – BAFNIU21422 Do all cases 100%
5. Nguyễn Vũ Bảo Ngọc - FAACIU22045 Do all cases 100% Score:
Date submitted and signatures: 6th January, 2024
Lê Thị Vân Nga – BAACIU21029 lOMoAR cPSD| 59085392 Group Assignment 1G Case 1:
A CPA has been requested to audit the financial statements of a publicly
traded company for the first time. All initial verbal discussions and inquiries between
the CPA, the company, the previous auditor, and all other relevant parties have
been completed. The CPA is now in the process of drafting an engagement letter. Required:
a. List the elements that should be included in a typical engagement letter under these circumstances.
b. Explain the benefits of preparing an engagement letter. *Solution:
a. Elements of a Typical Engagement Letter •
Addressee: This report is directed to the board of directors and the audit committee. •
Objective and Scope: The purpose of this audit is to evaluate
the financial statements for the fiscal year ending December 31, 2023,
including an assessment of internal controls. •
Auditor’s Responsibilities: The auditors will adhere to
professional standards, maintain independence, exercise professional
judgment, and acknowledge the inherent limitations of the audit process. •
Management’s Responsibilities: Management is responsible
for preparing accurate financial statements, ensuring effective internal
controls, and providing all necessary documentation for the audit. •
Reporting Framework: The audit will be conducted in accordance with GAAP. lOMoAR cPSD| 59085392 •
Audit Report and Deliverables: The final report will be an
unqualified opinion, accompanied by a management letter detailing any findings. •
Timing: The audit is scheduled to commence on January 15,
2024, and conclude by March 15, 2024, with provisions for potential delays. •
Fees: The billing structure will be based on hourly rates, with
payment due within 30 days of invoicing, and additional charges may apply for unforeseen circumstances. •
Termination Clause: Either party may terminate the
engagement with written notice under specified conditions. •
Signatures: The agreement will be signed by representatives
from both the CPA firm and the client.
b. Benefits of Preparing an Engagement Letter •
Clarifies Expectations: Clearly outlines the scope, roles, and
deliverables, reducing uncertainty. •
Reduces Misunderstandings: Provides explicit terms to help avoid disputes. •
Legal Protection: Functions as a legally binding document, helping to limit liability. •
Manages Risk: Specifies audit limitations and the reliance on clientprovided information. •
Fee Transparency: Lays out clear payment terms to prevent conflicts. •
Enhances Relationships: Fosters trust and establishes a professional atmosphere. •
Improved Documentation: Guarantees a written record of
terms, timelines, and deliverables. Case 2: lOMoAR cPSD| 59085392
The CPA firm of Wells & Partners employs a qualitative approach to
implementing the audit risk model. Audit risk is classified using two terms: very low
and low. The risk of material misstatement and detection risk are categorized using
three terms: low, moderate, and high. Determine detection risk for each of the
following hypothetical clients.
Client No. Audit Risk Risk of Material Misstatement Detection Risk 1 Low Moderate 2 Very Low High 3 Low Low 4 Very Low Moderate *Solution:
Audit Risk = Inherent Risk × Control Risk × Detection Risk
= Risk of Material Misstatement × Detection Risk
Client 1: Audit Risk: Low, Risk of Material Misstatement: Moderate
Since audit risk is low and risk of material misstatement is moderate, the
auditor will need to set detection risk at a moderate level to achieve the desired level of audit risk. ⟹ Detection Risk: Moderate
Client 2: Audit Risk: Very Low, Risk of Material Misstatement: High
Since audit risk is very low and risk of material misstatement is high, the
auditor must reduce detection risk to low to maintain the very low audit risk. ⟹ Detection Risk: Low
Client 3: Audit Risk: Low, Risk of Material Misstatement: Low
Since both audit risk and risk of material misstatement are low, the auditor
can afford to set detection risk at a high level because the risk of material misstatement is minimal. ⟹ Detection Risk: High lOMoAR cPSD| 59085392
Client 4: Audit Risk: Very Low, Risk of Material Misstatement: Moderate
Since audit risk is very low and risk of material misstatement is moderate,
detection risk must be reduced to low to maintain a very low overall audit risk. ⟹ Detection Risk: Low
Client No. Audit Risk Risk of Material Misstatement Detection Risk 1 Low Moderate Moderate 2 Very Low High Low 3 Low Low High 4 Very Low Moderate Low lOMoAR cPSD| 59085392
References and Citations
Johnstone, K., Gramling, A., & Rittenberg, L. E. (2013). Auditing: A risk-based
approach to conducting quality audits (9th ed.). Cengage Learning.
Illinois CPA Society. (2023). 8 critical elements of an effective engagement letter. Retrieved from
https://www.icpas.org/information/copydesk/insight/article/fall-
2023/8critical-elements-of-an-effective-engagement-letter