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ACCA Strategic Professional · Advanced Audit and Assurance (International) · Advertising, tendering, and obtaining professional work and fees

After winning the audit tender for Pellam Ltd, Ridgeway & Co prepares an engagement letter. Which item is most appropriately included under ISA 210 as part of agreeing the terms of the audit engagement?

The engagement letter should set out the objective and scope of the audit, the responsibilities of management and the auditor, and the applicable financial reporting framework, along with the expected form of reports. It does not promise fraud detection, since audits give reasonable assurance, nor does it list programmes or staff.

  1. AThe auditor's detailed audit programme and sample sizes
  2. BThe objective and scope of the audit, the responsibilities of management and the auditor, and identification of the applicable financial reporting frameworkCorrect
  3. CA guarantee that the audit will detect all fraud in the financial statements
  4. DThe names of all audit staff who will work on the assignment

Explanation

ISA 210 requires the engagement letter to include the objective and scope of the audit, the auditor's and management's responsibilities, the applicable financial reporting framework, and the expected form of reports. Option C is wrong because an audit provides reasonable, not absolute, assurance. Detailed programmes and staff names are not required.

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