An audit engagement letter sample is a document issued by an auditor to a client that defines the scope of an upcoming audit. This document includes a description of the auditing services to be provided, the responsibilities of both parties, and the reporting requirements of an examination. The document also provides a fee arrangement and terms of service.
The purpose of the audit engagement letter is to mitigate risk for both the auditor and the client. By clearly documenting the scope of an audit, the parties avoid potential misunderstandings and confusion during the audit. It also helps to prevent legal disputes in the future.
Specifically, the audit engagement letter confirms the auditor’s acceptance of the appointment and includes the objectives, scope, and extent of responsibilities and the form of reports that will be issued. It should also include a mediation or binding negotiation clause in the event of a dispute.
The letter should also highlight the management’s statutory responsibilities for accounting preparation of financial statements, institution of internal control, selection of accounting policies, and safeguard of assets. It should also indicate that the scope of an audit may be limited in respect of matters having a material effect on financial statements, and it should mention that the discovery of fraud is not the principal aim of an audit. Finally, the auditor should describe the scope of any special or additional work and the basis on which fees are computed.