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ACCA Strategic Professional · Advanced Audit and Assurance (International) · Reporting on other assignments

Marlowe LLP, the external auditor of Tidewater Ltd, is asked by the board to provide a report on the design of Tidewater's internal controls over its new payments system, to be used by a bank lender. Which is the most important step for Marlowe at acceptance of this engagement?

Marlowe should confirm that suitable criteria exist, agree scope and intended users in an engagement letter, and evaluate threats to independence before starting. Without these steps the engagement is not properly accepted, and the firm exposes itself to liability from unrestricted use of its report.

  1. AAgree that the report may be given to any third party without restriction on use
  2. BBegin fieldwork immediately and agree the terms after the report is drafted
  3. CConfirm that suitable criteria exist for evaluating the controls, agree the scope and intended users in an engagement letter, and assess threats to independenceCorrect
  4. DAvoid considering independence because the firm already audits the company

Explanation

An assurance engagement requires suitable criteria, an agreed scope and a clear understanding of intended users, documented in the engagement letter. The firm must also consider whether any threat to independence arises from the extra work. Unrestricted use and late agreement of terms increase liability risk, and existing audit appointment does not remove the need for independence assessment.

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