The form and content of audit engagement letters may vary for each client, but they would generally include the following basic contents of audit engagement letter. But first, we should know some other basic things abut audit engagement letter.
What Is an Audit Engagement
When a company has to go through the audit process, an examiner may use the title “audit engagement.” It can mean various things, so it is important that the auditor clarifies what he intends when he uses the term. Although of which definition the account follows, however, the auditor forever follows specific methods and guidelines for handling the commitment.
An audit engagement very loosely connects to an audit that an auditor works. More specifically, it refers only to the primary stage of an audit during which the auditor informs the client he has accepted the audit trade and clarifies his understanding of the audit’s objective and scope. Even more particularly, the term audit engagement can assign to the written letter by which the audience formally notifies the client he will engage in inspection services.
When referring to the audit as a complex, audit engagements incorporate several distinct steps, which are organized into devising, testing of controls, substantiation or fieldwork and exit or finalization. The first is assigning a letter to the client signaling him of the audit. After this primary contact, the client and auditor suffice to pinpoint considerably how, when and why the audit will proceed, as well as the resources the auditor will have to his direction. The auditor then conducts initial surveys to understand the firm and the controls in the distance.
The next step is examining the controls and gathering as much information as potential. Based on the results, the auditor assembles a draft of the formal audit record, which he shares with the consumer. As the audit work carries to finish, the account and client program an exit meeting. The client responds to the judgments of the report and the orders the auditor has performed.
The form and content of audit engagement letters may vary┬áfor each client. But they would generally include the following basic contents of audit engagement letter:
Contents of audit engagement letter
- The names of both parties;
- The objectives of the engagement;
- The scope of the audit;
- The accounting responsibility and the audit responsibility;
- The duties of both parties; (management and auditor). The deadline for the issuance of the audit report;
- The responsibility arising from the use of the audit report;
- The audit fees;
- The period for which the audit engagement letter is valid;
- The responsibility arising from a violation of the terms of the audit engagement letter;
- The date of signing the audit engagement letter; and
- Other matters which both parties consider the need to be included in the audit engagement letter.
- The form of any reports or other communication of results of the engagement.
- The fact that due to the test nature and other limitations of an audit, there is an unavoidable risk that some material misstatement may remain undiscovered.
- The fact that auditors are entitled to unrestricted access to records, documents and other information requested in connection with the audit.
The letter may also cover practical matters, such as arrangements relating to planning, using the work of experts, liaising with the internal audit department, the fee and restriction of auditor liability.
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