An audit engagement letter is a document that defines the scope of your work as an auditor and provides clear expectations for you and your client. It is a legal agreement between you and the company you are auditing and can be enforceable by the courts if necessary. Your engagement letter should include specific terms that limit your liability, the amount of time you expect the audit to take, the fees involved and other details important for an effective business arrangement.
An engagement letter is usually sent after verbal confirmation of your appointment, but ideally before you start any work on the audit. It identifies the extent of your responsibilities and minimizes any misunderstandings that may arise. The engagement letter also includes a statement of your acceptance of the assignment, the objectives and scope of the audit, and the form of the report.
In addition to clearly defining your work and setting expectations, your audit engagement letter should detail related deliverables such as an evaluation of internal controls, the preparation of an audit report and opinion letter at the conclusion of the audit and a timeline for performing fieldwork. It should also specify whether a separate report is required for subsidiaries of the parent company.
You should review your engagement letters on a regular basis and send new ones to all clients, regardless of the size of their business or the frequency of their statutory audits. You should also consider sending a new one to existing clients whenever there is a change in the objective and scope of the audit, or where the circumstances require a different level of assurance from your previous report. audit engagement letter sample