WHAT IS AUDIT ENGAGEMENT LETTER?

 


An audit engagement letter is a document in the form of letter or other form of written agreement which is generated before the auditor is to accept or continue an audit engagement.

An audit engagement letter is needed to establish whether the preconditions for an audit are met and confirm that there is a common understanding between the auditor and management of the terms of the audit engagement.


Preconditions for an audit means the use by management of an acceptable financial reporting framework in the preparation of the financial statements.

Mostly an audit engagement letter includes following terms of audit engagement:

·        The objective and scope of the audit of the financial statements.

·        The responsibilities of the auditor.

·        The responsibilities of management.

·      Identification of the applicable financial reporting framework for the preparation of the financial statements; and

·        Other information, such as fee arrangements, billings, and other specific term.

·        The expected form and content of any reports to be issued by the auditor; and

·     A statement that there may be circumstances in which a report may differ from its expected form and content.

An audit engagement letter may have the following structure:

1.   The addressees and references (appropriate representative of management or those charged with governance of Company).

2.      The objective and scope of the audit.

3.      The responsibilities of the Auditor.

4.  The responsibilities of management and identification of the applicable financial reporting framework.

5.      Other relevant information, such as fee arrangements, billings, and other specific term.

6.  Appropriate reference to the expected form and content of the auditor’s report including, if applicable, the reporting on other information.

7.    Signature, title, and name of representative of management or those charged with governance of company client.

8.      Date.

The attached copy of this letter should be signed and returned to the auditor. This action indicates the acknowledgement of, and agreement with, the arrangements for an audit of the financial statements including the auditor responsibilities.

In conclusion an audit engagement letter is an important document of the financial statements audit process which is prepared and signed before an audit takes place.

ISA 210 about audit engagement letter

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