1. must be written
2. establishes an understanding of services to be performed and responsibilities
3. adressed to whoever engaged the CPA firm
4. from the CPA firm

1. 5-10% of NI or earnings before taxes
2. .5-2% of larger of net sales or total assets
3. 5% of OE for private companies

1. public company have lower materiality thresholds because more exposure to litigation
2. lower materiality threshold in unstable industries

1. auditor responsibility
2. planned scope/timing, significant findings
3. done on a timely basis
4. written or oral, but oral should be documented
5. illegal acts, going concern issues, fraud, IC matters

1. Inquiry
2. observation
3. review

1. must be communicated in writing to management and audit committee
2. communicated by report release date (or no later than 60 day window
3. no documentation if no deficiencies are found
4. if management responds, add a paragraph and disclaim an opinion on the response

Control Environment

Risk assessment procedures

Information System

Monitor

Existing control activities

1. nature of assertion
2. plausability and predictability of the relationship
3. availability of reliable data
4. precision and expectation

1. existence
2. completeness
3. rights/obligations
4. valuation/allocation

1. occurence/rights/obligations
2. completeness
3. classification/understandability
4. accuracy and valuation

1. accuracy
2. occurence
3. completeness
4. cutoff
5. classification

1. large number of small accounts
2. control/inherent risk is low
3. no reason to believe customers wont consider before returning