The correct answers are: To prevent misunderstandings between auditor and client; To set out the nature of the work that will be performed to the client; To set out the billing arrangements; To explain the respective responsibilities of directors and auditors.

ISA 210 Agreeing the terms of audit engagements states that the engagement letter is to avoid misunderstandings between auditor and client. The example letter in the ISA sets out the nature of the work that will be performed to the client, the billing arrangements and explains the respective responsibilities of directors and auditors.

The engagement letter is a private matter between auditor and client and is not placed on the public record.