As it is discussed on my previous post [Audit Process for Nonpublic Audits], the auditor should establish an understanding with entity regarding the nature of the services to be provided. This understanding should include the objectives of the engagement, management’s responsibilities, the auditor’s responsibilities, and limitations of the engagement. An engagement letter as [it is presented on below example] reduces to writing the understanding of the arrangements concerning the services to be provided and helps eliminate potential misunderstandings that otherwise may arise.
Lie Dharma Putra & Partners
Certified Public Accountants
Mr. Edward Brown, President
Anonymous Company, Inc.
Somewhere, New York 10000
Dear Mr. Brown:
This will confirm our understanding of the arrangements for our audit of the financial statements of Anonymous Company, Inc., for the year ending [date].
We will audit the Company’s balance sheet at [date], and the related statements of income, retained earnings, and cash flows for the year then ended, for the purpose of expressing an opinion on them. The financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the financial statements based on our audit.
We will conduct our audit in accordance with U.S. generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit will provide a reasonable basis for our opinion.
Our procedures will include tests of documentary evidence supporting the transactions recorded in the accounts, tests of the physical existence of inventories, and direct confirmation of receivables and certain other assets and liabilities by correspondence with selected customers, creditors, legal counsel, and banks. At the conclusion of our audit, we will request certain written representations from you about the financial statements and matters related thereto.
Our audit is subject to the risk that material errors and irregularities, including fraud or defalcations, if they exist, will not be detected. However, we will inform you of irregularities that come to our attention, unless they are inconsequential.
If you intend to publish or otherwise reproduce the ?nancial statements and make reference to our firm, you agree to provide us with printers’ proofs or masters for our review and approval before printing.
You also agree to provide us with a copy of the ?nal reproduced material for our approval before it is distributed.
We will review the Company’s federal and state [identify states] income tax returns for the fiscal year ended [date]. These returns, we understand, will be prepared by your controller.
Further, we will be available during the year to consult with you on the tax effects of any proposed transactions or contemplated changes in business policies.
Our fee for these services will be at our regular per diem rates, plus travel, and other out-of-pocket costs.
Invoices will be rendered every two weeks and are payable on presentation.
We are pleased to have this opportunity to serve you.
If this letter correctly expresses your understanding, please sign the enclosed copy where indicated and return it to us.
Lie Dharma Putra & Partners
I hope this audit engagement letter example a contribution.