An engagement letter is used to establish an understanding between the auditor and the client. The letter generally includes broad auditor responsibilities outlined in the auditing standards. These responsibilities help the auditor form an opinion about the fair presentation of the financial statements including:

• Conducting the audit in accordance with GAAS
• Obtaining reasonable assurance that the financial statements are free from material misstatement
• Communicating internal control deficiencies (eg, material weaknesses) to the client (eg, audit committee)

(Choice A) The engagement letter states the auditor has the responsibility to conduct the audit in accordance with GAAS. However, the individual components (eg, judgments about materiality) of the audit process and procedures are not included.

(Choice B) When an auditor has doubts about the entity's ability to continue as a going concern, management may respond with mitigating factors that the auditor is responsible to evaluate. However, management's responsibility for identifying mitigating factors is not usually specified in an engagement letter.

(Choice D) Management's responsibility for designing, implementing, and maintaining internal controls to prevent material misstatements due to fraud or error is usually included in an engagement letter. Other specific responsibilities regarding fraud (eg, to provide a risk assessment on fraud) are not usually included in the letter.

Things to remember:
An auditor's responsibilities in an engagement letter include conducting the audit in accordance with GAAS, obtaining reasonable assurance, and communicating control deficiencies to the client. Management's responsibilities include preparing the financial statements, internal controls, and providing the auditor with relevant information.