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Dibble and Dabble, CPAs for China Corporation, are tasked


to review the financial statements of the company.
Throughout the review, reservations on financial statements
are indicated. The CPA was said to be uneasy towards the
findings.
Ultimately, there is no act of fraud committed in relation to
the validity of the findings.

A) ROLE OF THE ENGAGEMENT LETTER DURING


PERFORMANCE OF A REVIEW OF A CLOSELY HELD
COMPANY:

Documentation of the agreement between the CPA and the


client regarding the scope and limitations of the
engagement.
-minimizes future misunderstandings and lawsuits.

Protection from legal liability:


-can form the basis of an effective defense in the event of a claim.
-Trial juries typically do not have a sophisticated understanding of
the variety and precise features of services performed by CPAs. In
rendering their judgments, they must therefore heavily rely on
documentation and live testimony evidencing communications
between the CPA and the client. In the absence of an engagement
letter, decisions regarding disputes concerning level of service tend
to favor clients more often than CPAs.

A) ROLE OF THE ENGAGEMENT LETTER DURING


PERFORMANCE OF A REVIEW OF A CLOSELY HELD
COMPANY:

help CPAs establish a positive basis for communication


with clients.
- help to avoid expectation gaps for services to be
rendered. Taking steps to establish clear expectations
promotes this positive word-of-mouth and expands business
accordingly.
By John McFadden, CPA, CFE and Joseph Wolfe,
Director of Risk Management Accountants
Professional Liability CNA Pro.

TYPICAL ENGAGEMENT LETTER RELEVANT TO DIBBLE AND


DABBLE, CPAS AND CHINA CORPORATION:
Objective of the service being performed.
Managements responsibility for the Financial statement.
The scope of the review.
Unrestricted access to whatever records, documentation and
other information requested in connection with the review.
A sample of the report expected to be rendered.
The fact that the engagement cannot be relied upon to
disclose errors, illegal acts or other irregularities, example of
which includes fraud or defalcations that may exist.
A statement that an audit is not being performed and
that an audit opinion will not be expressed. To emphasize this
point and to avoid confusion, the auditor may also consider
pointing out that a review engagement will not satisfy any
statutory or third party requirements for an audit.

C) POTENTIAL LIABILITY THAT DIBBLE AND DABBLE MAY


FACE

Gross Negligence
Dibble and Dabble can be responsible for being grossly
negligent during the review process. As per the reason that they
didnt took appropriate procedures and just wholly relied on the
representations of the management on some certain entries which
Dibble himself had felt uneasy. For any assurance service, may it be
a review or an audit, responsible CPA must put into practice
Professional Skepticism. Thus, should have taken Inquiries and took
Analytical Procedures concerning the validity of that certain entries.

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