AICPA CPA-Auditing Exam - Topic 3 Question 132 Discussion

Question

The understanding with a client of an auditor's contractual obligation ordinarily is set forth in the:

Chan · Accepted Answer

C) Engagement letter.

Chan · Answer

A) Management letter.

Chan · Answer

B) Scope paragraph of the auditor's report.

Chan · Answer

D) Introductory paragraph of the auditor's report.
Explanation
Choice 'c' is correct. An engagement letter, which is a presumptively mandatory requirement, sets forth the scope and nature of an auditor's contractual obligation to a client.
Choice 'a' is incorrect. A management letter (also known as a letter of recommendations, or a constructive services letter) is usually delivered by the auditor at the end of the audit. It identifies areas of weakness and provides recommended solutions.
Choices 'b' and 'd' are incorrect. The scope and introductory paragraphs of the auditor's report do provide some information regarding the work performed by the auditor, but they do not express the auditor's understanding with the client as completely as does an engagement letter.