A well-drafted audit engagement letter is a valuable tool that clarifies expectations from both sides early in the relationship. It helps to avoid misunderstandings in the future and can protect both the auditor and the client.
An engagement letter is a legal document that defines all stipulations of an audit. It should be sent after verbal confirmation of the auditor’s appointment and ideally, prior to the start of any audit work.
Among the most important sections in an engagement letter is the scope section that defines the audit’s objective and what is included in the scope of the audit. It also outlines management’s statutory and professional duties and reporting responsibilities, as well as the auditee’s responsibility to provide adequate and reasonable evidence for all significant accounting items that are not tested or otherwise reviewed.
The scope section should also clearly state the scope of work that is not covered by the audit, and explain why. It should also disclaim that the audit is limited to professional standards and other purposes, such as fraud detection, and does not include a comprehensive investigation regarding any potential illegal activities by the client.
Other key sections in the engagement letter are a statement of professional fees and a breakdown of expenses, including travel and direct costs. It should also clearly describe the method for calculating the fees and any applicable provisions. Finally, it should request confirmation that the client understands and agrees to these terms. audit engagement letter sample