ATP Limited, a large manufacturing company, is planning to invest funds in RS Ltd. with a future vision of taking over the company at a later stage.…
CA Final · Advanced Auditing, Assurance and Professional Ethics · PYQS · November 2024
ATP Limited, a large manufacturing company, is planning to invest funds in RS Ltd. with a future vision of taking over the company at a later stage. On studying the financial statements of RS Ltd, the investing company wants to get detailed status regarding the Accounts receivable and Inventory appearing in the Balance Sheet. ATP Limited approached you to perform agreed upon procedures for the two elements of financial statement of RS Ltd. and submit a detailed report for the same. As the engagement partner, you are responsible for drafting the engagement letter. Enumerate the key matters that need to be agreed to form a clear understanding regarding agreed upon procedures and the conditions of the engagement. What matters will you include in the engagement letter addressed to the management of ATP Ltd?
Suggested Answer and Working Notes:
(a) As per SRS 4400 “Engagements to Perform Agreed-upon Procedures regarding Financial Information”, matter to be agreed and would be included in the engagement letter are given as under: A. Matters to be agreed include the following: (a) Nature of the engagement including the fact that the procedures performed will not constitute an audit or a review and that accordingly no assurance will be expressed. (b) Stated purpose for the engagement. (c) Identification of the financial information to which the agreed-upon procedures will be applied. (d) Nature, timing and extent of the specific procedures to be applied. (e) Limitations on distribution of the report of factual findings. When such limitation would be in conflict with the legal requirements, if any, the auditor would not accept the engagement. B. Matters that would be included in the engagement letter include: A listing of the procedures to be performed as agreed upon between the parties.A statement that the distribution of the report of factual findings would be restricted to the specified parties who have agreed to the procedures to be performed.
Topics: Standard on Auditing (SA)
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