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AUD: Planning and Internal Control: Audit Engagement Letter - YouTube
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Hey, folks. We’re now going to take a look
at the engagement letter, and understand
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all of the items that are going to be
included in it. We have to whom do we
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address it. We’re going to talk about
the scope and the objectives of our
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audit. Our responsibilities,
management’s responsibilities. Any other
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relevant information. The report that we
anticipate issuing. And then we’re going
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to sign and date it. So we’re going to
deal with each one of those. So let’s
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take a look. Remember, this is the
engagement letter. This isn’t the audit
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opinion. So it’s the engagement letter.
So there's little differences, and you
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want to remember those. So let’s go on
to the next slide here. First of all, to
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whom do we address it? We address it to
either those charged with governance, or
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you can obviously send it to the chief
accounting officer, the chief financial
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officer, the chief operating officer. So
it can go to one of the officers of the
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company. They’re going to be signing it
as an agent for the organization. It
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says you have requested that we audit the
financial statements of the company,
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right? Which comprised of the balance
sheet at December 31st and the related
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statements of income, changes in
stockholders’ equity cash flows, and the
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related footnotes. We are pleased to
confirm our acceptance, and our
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understanding of this audit engagement by
means of this letter. Our audit will be
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conducted for the objective of expressing
our opinion on your financials. The next
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item, we will conduct our audit in
accordance with auditing standards
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generally accepted in the United States.
Those standards require that we plan and
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perform the audit. By the way, doesn’t
this sound an awful lot like the actual
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audit opinion? It does, doesn’t it? A
lot like it. To obtain reasonable
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assurance about whether the financials
are free of material misstatement, an
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audit includes performing procedures to
obtain audit evidence about the amounts
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and disclosures in those financial
statements. The procedures selected
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depend on the auditor’s judgment,
including the assessment of risk of
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material misstatement on the financials
whether due to fraud or error. An audit
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also includes evaluating the
appropriateness of the accounting
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policies used, and the reasonableness of
significant accounting estimates made by
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management, as well as evaluating the
overall presentation. So far, so good.
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Let’s go on to the next page. It says
because of the inherent limitations of an
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audit, together with the inherent
limitations of internal control, an
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unavoidable risk that some material
misstatement may not be detected. All
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right? That exists. We’re not
responsible for detecting it. We’re
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trying to, but we can’t ultimately
guarantee it, even though an audit is
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properly planned and performed in
accordance with GAAS. In making our risk
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assessment, we consider internal control
relevant to the entity’s preparation and
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fair presentation of the financials in
order to design audit procedures that are
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appropriate in the circumstances. But
not for the purpose of expressing an
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opinion on the effectiveness of the
entity’s internal control. This happens
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to be an engagement letter for a
nonissuer. Remember, if you’re auditing
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a public company, then you got to do both
an audit of the financials and their
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internal control over financial
reporting. However, we will communicate
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to you in writing concerning any
significant deficiencies or material
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weaknesses in the internal control
relevant to the audit of the financials
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that we have identified. Let’s move on.
Our next portion of this one.
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Our next page says our audit will be
conducted on the basis that, and notice,
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that management and, when appropriate,
those charged with governance. That they
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understand and acknowledge that they are
responsible for all of these items. The
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preparation and fair presentation of the
financials in accordance with GAAP in the
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United States. The design,
implementation and maintenance of
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internal control relevant to the
preparation of fair presentation of
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financials that are free of material
misstatement, whether due to fraud or
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error. And to provide us with access to
all information of which management is
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aware that is relevant to preparation and
fair presentation, such as records,
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documents, and other matters. Additional
information that we may require from
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management for the purpose of the audit.
And unrestricted access to persons within
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the entity. As part of the audit
process, we will request from management
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and the appropriate members of the
governing body written confirmation
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concerning representations that have been
made in connection with our audit. Let’s
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move up. You would insert any other
items like fees and bills. And then we
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have the report. We will issue a written
report upon the completion of our audit
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of the ABC Financials, all right, that’s
the audit that we’re doing. Our report
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will be addressed to the board of
directors of ABC, right. We write the
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report to the owners, the board of
directors. This letter can be written to
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them, or it can be written to one of the
officers who will sign as their agent.
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We cannot provide assurance that an
unmodified opinion will be expressed.
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Remember, it’s unmodified opinion when
it’s not, when it’s a nonissuer, a
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non-public company. It is a qualified
opinion if it’s an issuer, unqualified
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opinion, excuse me. Circumstances may
arise in which it’s necessary for us to
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modify the opinion, add an emphasis of
matters, or an other matters paragraph.
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Or even to withdraw. Please sign and
return the attached copy of this letter
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to indicate your acknowledgement of,
agreement with, and arrangements of our
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audit of the financials including our
respective responsibilities. And notice,
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we have it with their company, their
acknowledgement, name, title, and
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address. So that gives you an idea of
how the client engagement letter would
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look. Hopefully that helps. We’re now
ready to try an exercise.
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