Engagement Acceptance And Terms Practice Test

A CPA firm is considering an initial audit engagement for a publicly traded biotech company (an issuer) that recently received a whistleblower complaint alleging improper capitalization of research costs. Management wants the firm to begin work immediately but requests that the engagement letter not be shared with the audit committee. Under PCAOB standards and issuer governance expectations, how should the auditor respond regarding engagement terms and communications?

A CPA firm is preparing an engagement letter for an initial audit of a privately held franchisor (a nonissuer) that has complex revenue streams from franchise fees, royalties, and vendor rebates. Management requests that the engagement letter state the auditor is responsible for preparing the financial statements and maintaining the accounting records to “avoid confusion.” How should the auditor respond when documenting engagement terms under AICPA auditing standards?