Auditor Engagement Letter

Engagement letter is a sent by an auditor to his client, after the receipt of communication regarding his appointment, but preferably before the commencement of engagement, spewing out the extent of his responsibilities in order to avoid any misunderstanding with respect to his engagement and documents and confirming the acceptance of appointment, the objectives and scope of audit, the extent of responsibilities and the form of reports to be made to the client.

It is in the interest of both client and auditor that the auditor sends an engagement letter, preferably before the commencement of the engagement, to help in avoiding misunderstandings with respect to the engagement. The engagement letter documents and confirms the auditor’s acceptance of the appointment, the objective and scope of the audit, the extent of the auditor’s responsibilities to the client and the form of any reports.

Contents

• The objective of the audit of financial statements;
• Management’s responsibility for the financial statements;
• The scope of the audit, including reference to applicable legislation, regulations, or pronouncements of professional bodies to which the auditor adheres;
• The form of any reports or other communication of results of the engagement;
• The fact that because of the test nature and other inherent limitations of an audit, together with the inherent limitations of internal control, there is an unavoidable risk that even some material misstatement may remain undiscovered;
• Unrestricted access to whatever records, documentation and other information requested in connection with the audit; and
• Management’s responsibility for establishing and maintaining effective internal control.

The auditor may also wish to include the following in the letter:

• Arrangements regarding the planning and performance of the audit.
• Expectation of receiving from management written confirmation concerning representations made in connection with the audit.
• Request for the client to confirm the terms of the engagement by acknowledging receipt of the engagement letter.
• Description of any other letters or reports the auditor expects to issue to the client.
• Basis on which fees are computed and any billing arrangements.