Problem
i. List in bullet form the key items that should be documented in an audit engagement letter. Is an engagement letter a legally binding contract?
ii. What factors or circumstances may have caused KMPG to reduce the number of budgeted hours for the 1995 TDW audit and to assign less experienced personnel to that engagement? For each factor or circumstance, you identified, indicate whether you believe it is a valid reason for the given decision.
iii. Is the "quality" of an audit adversely affected when an accounting firm reduces the planned number of hours to be expended on that audit? Is the quality of an audit adversely affected when an accounting firm uses less experienced personnel to perform the engagement? Defend your answers.
iv. Do you agree with the appellant court's ruling that accounting firms should be permitted to determine the nature and scope of their audits without consulting or informing their clients? Explain.