Write short notes on: Terms of Audit Engagements.

Auditing and Assurance Revision Questions and Answers

Answer:
As per NSA 210 ” Agreeing Upon Terms of Engagement”, the auditor and the client should agree on the term of the engagement to reduce audit expectation gap. The agreed terms would need to be recorded in an audit engagement letter or other suitable form of contract. It is in the interest of both client and auditor that the auditor sends an engagement letter, preferably before the commencement of the engagement, to help in avoiding misunderstandings with respect to the engagement. The engagement letter documents and confirms the auditor’s acceptance of the appointment, the objective and scope of the audit, the extent of the auditor’s responsibilities to the client and the form of any reports.

Principle Contents
The form and content of audit engagement letters may vary for each client, but they would generally include reference to:
 The objective of the audit of financial statements.
 Managements’ responsibility for the financial statements.
 The scope of the audit, including reference to applicable legislation, regulations or pronouncements of the Institute of the Chartered Accountants of Nepal.
 The forms of any reports or other communication of results of the engagement.
 The fact that because of the test nature and other inherent limitations of an audit, together with the inherent limitations of any accounting and internal control system, there is an unavoidable risk that even some material misstatement may remain undiscovered.
 Unrestricted access to whatever records, documentation and other information requested in connection with the audit.



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