Question

EXPLAIN THE IMPORTANCE OF AUDIT ENGAGEMENT TO AUDITOR AND THE CLIENT

Answer 1

Explain the importance of audit engagement to auditor and the client?

Meaning of Audit Engagement-

An audit engagement very loosely refers to an audit that an auditor performs, reports Accounting Tools. More specifically, it refers only to the initial stage of an audit during which the auditor notifies the client he has accepted the audit work and clarifies his understanding of the audit's purpose and scope.

Importance of Audit Engagement letter----

At the beginning of the client relationship, you probably discussed the client’s needs, the services to be provided, and what the client expected to receive from the firm. Rather than viewing an engagement letter as an administrative hassle or a non-value-added activity, consider it a tool that helps memorialize client discussions and manage expectations. This leaves more time for delivering billable services and means less time will be spent resolving misunderstandings related to scope of services or fees. The result is a win-win for the client and the CPA.

The need for an audit engagement letter mainly stems from the reason for ensuring that there is proper communication between the auditor and the engagement party regarding the scope of work. It also includes subsequent limitations during the course of the audit.

This is a considerably important part because it helps to establish a favourable communication channel between both parties so that there are no expectation gaps in the near future.

In the same manner, it also states the respective duty that the party is going to perform over the course of the contract.

This helps to dissect responsibilities in the senses that the management is responsible for the preparation of financial statements, whereas the auditor is responsible to ensure that these financial statements have not been understated or misused.

The audit engagement letter can simply be termed as a service agreement between the auditor and the company, which is a formality that is supposed to be completed in order to ensure that the company is able to maximize their results, for best outcomes.

Hence, in this regard, it is imperative that the audit engagement letter can be used in order to minimize the chance of misunderstanding between both parties because most of the clauses would have been agreed upon well in advance.

The audit engagement letter therefore, acts as a proof that the auditor is supposed to take care of the respective agreed upon components of the audit, so that they are able to achieve better outcomes.