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Format of Engagement Letter by Auditor

It is very important to keep engagement letter for every professional for all kind of professional work, but it becomes of higher importance in case of Audit work. Following is format for engagement letter to be kept by auditor.

 

Client    :

Financial Year :

Prepared By       :               Date :

Reviewed By      :               Date :

 

Guidance


The Engagement Letter has to be prepared in duplicate and signed by the client before the engagement is started. A sample format (for a company under the Companies Act, 2013) is given below which is required to be tailored for each circumstance.

The auditor and the client should agree on the terms of the engagement. In the interest of both client and auditor, the auditor should send an engagement letter, preferably before the commencement of the engagement, to help avoiding any misunderstandings with respect to the engagement. The engagement letter documents and confirms the auditor's acceptance of the appointment, the objective and scope of the audit and the extent of the auditor's responsibilities to the client.

To (the appropriate representative of management)

____________________________________

____________________________________

You have requested that we audit the financial statements of ABC Company Pvt Ltd. , which comprise the balance sheet as at 31st March, 2XXX and the Statement of profit and loss and the (cash flow statement1) and a summary of significant accounting policies and other explanatory information for the year ended on that date. 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 Standards on Auditing issued by the Institute of Chartered Accountants of India. Those Standards require that we comply with the ethical requirements plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatements. 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 the accounting principles used and the reasonableness of accounting estimates made by management, as well as evaluating the overall financial statement presentation.

Because of inherent limitations of an audit together with inherent limitations of an internal control system, there is an unavoidable risk that some material misstatements may not be detected, even though the audit is properly planned and performed in accordance with SAs.

In making our risk assessments, we consider internal control relevant to the entity's preparation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. However, we will communicate to you in writing concerning any significant deficiencies in internal control relevant to the audit of the financial statements that we have identified during the audit.

Our audit will be conducted on the basis that management and those charged with governance acknowledge and understand that they have the responsibility:

(a) For the preparation of financial statements that give true and fair view in accordance with the Accounting Standards notified under section 211 (3C) of the Companies Act, 1956

This includes:

  • The responsibility for the preparation of financial statements on a going concern basis.
  • The responsibility for selection and consistent application of appropriate accounting policies, including implementation of applicable accounting standards along with proper explanation relating to any material departures from those accounting standards.
  • The responsibility for making judgements and estimates that are reasonable and prudent so as to give a true and fair view of the state of affairs of the entity at the end of the financial year and of the profit or loss of the entity for that period.

(b) For such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error; and

(c) To provide us with:

 (i) Access, at all times, to all information, including the books, account, vouchers and other records and documentation, of the Company, whether kept at the head office of the company or elsewhere, of which management is aware that is relevant to the preparation of the financial statements such as records, documentation and other matters;

(ii) Additional information that we may request from management for the purpose of the audit; and

(iii) Unrestricted access to persons within the entity from whom we determine it necessary to obtain audit evidence. This includes our entitlement to require from the officers of the Company such information and explanations as we may think necessary for the performance of our duties as auditor.

As part of our audit process, we will request from management and, if needed, from those charged with governance, written confirmation concerning representations made to us in connection with the audit.

We also wish to invite your attention to the fact that our audit process is subject to 'peer review' under the Chartered Accountants Act, 1949. The reviewer may inspect, examine or take abstract of our working papers during the course of the peer review.

We look forward to fullest cooperation from you and your staff and we trust that whatever records, documentations and other information as requested in connection with our audit will be made available to us from time to time.

Our fees will be billed as the work progresses.

This letter will be effective for future years also unless it is terminated, amended or superseded.

Please sign and return the attached copy of this letter to indicate that it is in accordance with your understanding of the arrangements for our audit of the financial statements.

 

Date:

 Place:

 

 

Acknowledged on behalf of _______________  by

Date:

Place:

XYZ & Co.

Chartered Accountants

 

 

(Signature)

(Name of the Member)

(Designation)

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