Lakeside – Case 3, Discussion Question 1

Consider this before you review your answer against the suggestion below …
Rather than simply answering this question by simply reading Exhibit 3-1 (compare this with the example in ASA 210, Appendix 1, think about how any parts of the letter might be considered in light of the material you studied for legal liability. For example, consider the contractual obligations being invoked by both parties; also consider the declaration that absolute assurance is not being given in regard to major (material) misstatements. Think about the difference between absolute and reasonable assurance and reflect on why the auditor would want to make this explicit point – you might like to review ASA 200.–5-7, A30-A54 and ASA 500.6, A5-A13.

Suggested answer …

The engagement letter is required. ASA 210.9-12, A22-A23 specifies this and that it will be in writing and include any legislative requirements as a minimum. Be very clear about this.

Some responsibilities of Abernethy & Chapman (or any auditor) include (ASA 210.A24-A26) to:

• perform an audit in order to express an opinion on Lakeside’s financial statements,
• make a search for material misstatements,
• report any internal control weaknesses,
• report any potential fee changes,
• provide the final audit report by February 22, 2013.

See if you can recall any specific legal precedent (cases) and specific sections of the Corporations Act that might have influenced the auditor to specify these matters in an engagement letter.

Some responsibilities of Lakeside (or any client) include (see ASA 210.6, A11-A21) to:

• pay the audit fee,
• provide a year-end trial balance by January 17, 2013, and an interim trial balance by October 17, 2012.
• provide working papers (client-prepared schedules, for e.g., bank or debtors or creditors reconciliations) to Abernethy & Chapman as requested.