 In this presentation, we will take a look at preliminary engagement activities. In a prior presentation, we took a look at the audit, breaking it out into stages, those stages including the client acceptance and continuance, preliminary engagement activities, support accounting instruction by clicking the link below, giving you a free month membership to all of the content on our website broken out by category further broken out by course. Each course then organized in a logical reasonable fashion, making it much more easy to find what you need than can be done on a YouTube page. We also include added resources such as Excel practice problems, PDF files and more like QuickBooks backup files when applicable. So once again, click the link below for a free month membership to our website and all the content on it. Plan the audit, consider and audit internal control audit business processes and related accounts, complete the audit, then evaluate results and issue the report. Now we are focusing in on the preliminary engagement activities. So note, we're still basically above the planning of the audit section before we get into the auditing of the internal controls. And finally to what most people would consider kind of diving into the actual activities, the audit business process and related accounts actually taking say give me the accounts, let me go through and start auditing those activities. So the preliminary engagement activities assess the compliance with independent and ethical requirements, determine audit engagement team requirements. So we're going to think what are the routine requirements that we are going to need for the engagement topics to discuss will include the engagement letter, whether we can use the work of the internal auditors and note if we're talking about a large type of engagement, especially for publicly traded companies, they probably have internal auditors, those auditors that are going to be working for the company, they get a W2 wages. Therefore they don't have the same independence, which is part of the need for us as the external auditor to be auditing. However, they're going to be doing many of the same type of procedures. Therefore, our question then is, well, can we depend? Can we use their working papers or in other words, to what extent can we use the working papers or the work that is being done by the internal auditors in order to collaborate our evidence as the external auditor and possibly lower the amount of work we need to do? If we're looking at smaller type of companies, we may not have any internal auditors. Obviously at some level, you have to get above some threshold level before hiring an internal auditor is going to be appropriate, but publicly traded companies will typically have them. And again, our question is, can we use the work that they do the role of the audit committee? So we're going to discuss the role of the audit committee as we go through, of course, the auditing process. And you'll recall that the audit committee is going to be a subset of the board of directors. The board of directors is going to be voted on by the stockholders, the owners of the company, they are in charge of hiring management. So they're the people that basically we will be talking to much of the time when we're considering the audit process, setting up the audit process, reporting the audit process. And when we issue the audit report, engagement letter documents the terms of the engagement, including so now we're talking about the engagement letter, you'll obviously whenever we have a new engagement, we want to give the engagement letter. And I would recommend this with just about any type of engagement, of course, we would want it with an audit because it's a pretty formal type of process, but you want it with basically anything you're doing, if it's if you're doing bookkeeping or something like that, you probably want the engagement letter taxes engagement letter, few different reasons, because you want to list out exactly what you're doing, and what the responsibility of the client is. If you don't have the terms set up very well, then it's very possible for the two people involved or the entities involved to not have an understanding of what's going on or what's being expected. It's also possible for kind of work creep, we could call it to happen as well. In other words, it's possible for the client to slowly basically ask for more types of services and us to be providing them without basically reassessing what the engagement is, what the actual terms are, possibly not, you know, billing for them in the proper way that we should be doing within an audit. Of course, it's very important for us to determine upfront, this is what we are doing. This is what you are doing. It could be very confusing for smaller type of companies that may not have as much experience with the audit to have that separation of what's going on here, what's the purpose of an audit, especially for a small company, maybe they need an audit for a loan or something like that. They might have the impression that the CPA firm is there to basically put together, you know, do more work to help put together the financial statements or something like that as opposed to reviewing the financial statements that are put together by management, management being responsible for the assertions. Publicly traded companies obviously that should be pretty well known because the audit process is a required process. So engagement letter then. We want to list out the objectives. We want to know what the management's responsibilities are and we want to know what the auditor's responsibilities are. Any limitation of the engagements, we want to list out any kind of limitations of the engagement. Engagement letter may also include, so these are basically the minimum. This is the minimum of what we would have in the engagement letter. We could include, in addition to the minimum, plans for use of specialists or internal auditors. So if there's a specific plan for the use of the internal auditor information, or if we need some type of specialist say to review the value of certain assets or something like that, we may list that in terms of the engagement as well. So that is clear. limitation of liability of the auditor or client. So we may put the kind of like this is the kind of like a disclaimer in there, the limitation of the liability of the auditor or the client, any additional services agreed to be provided. So if we have anything above and beyond the audit, we want to list out, Hey, this is the audit. This is another engagement we might have. Now note, you probably you may want to have this outside of the engagement letter. In other words, if you're going to do the audit, and then you're also going to do tax work or something like that, it might be best to say, Hey, here's the audit engagement letter. Here's the tax engagement letter, you might want to have in other words have two engagement letters for separate engagements, so that you don't start blending these things together in the mind of the client and or yourself and the CPA firm. Now we'll take a look at a little bit more detail related to the audit committee. Requirement of audit committee members of publicly held companies, according to section 301 of Sarbanes-Oxley Act includes member of the board of directors and independent directly responsible for overseeing work of any registered public accounting firm employed by the company must pre approve all audit and non audit services provided by its auditors must establish procedures to follow for complaints and must have authority to engage independent counsel.