Audit engagement letter sample



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How do you write an audit engagement letter?

When drafting a response to a client, regarding an annual financial audit, aim to achieve the following:
  • Agreeing on the terms of the engagement with the client;
  • The auditor’s response to a request by a client to change the terms of an engagement to one that provides a lower level of assurance. 
When following this format, you are sure the content of audit engagement letters will be according to the expectations of the client. Further, it's important to include a reference to:

  • 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.
    • The 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
    • The basis on which fees are computed and any billing arrangements.
Audit engagement letter example:

To Board of Directors / Dear Recipient Name,

You have requested that we audit the financial statements of {{Year}}, which comprise the balance sheet and the income statement, statement of changes in equity and cash flow statement for the year then ended, and a summary of significant accounting policies and other explanatory notes. 

We are pleased to confirm our acceptance and our understanding of this engagement by means of this letter. Our audit will be conducted with the objective of our expressing an opinion on the financial statements. We will conduct our audit in accordance with International Standards on Auditing.

Those Standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements.

The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. Because of the test nature and other inherent limitations of an audit, together with the inherent limitations of any accounting and internal control system, there is an unavoidable risk that even some material misstatements may remain undiscovered.

For your convenience, we provide this Audit engagement letter sample is for use as a guide in conjunction with the considerations outlined in International Standard on Auditing (ISA) and requires customization according to individual requirements and circumstances. 


DISCLAIMER
Nothing on this site shall be considered legal advice and no attorney-client relationship is established.


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