Engagement Letter
An engagement letter is a written agreement between the auditor and the client that documents the terms of the audit engagement, including objectives, scope, responsibilities, and limitations.
Explanation
The engagement letter must be agreed upon before the audit begins. It specifies the objective and scope of the audit, responsibilities of the auditor and management, the applicable financial reporting framework, and the expected form of reports. Management must acknowledge responsibility for the financial statements, internal controls, and providing access to all relevant information. The letter is updated or reaffirmed for recurring engagements.
Key Points
- •Required before the audit begins
- •Documents objectives, scope, and responsibilities of both parties
- •Management acknowledges responsibility for financial statements and internal controls
Exam Tip
An engagement letter is required for every audit — for recurring engagements, assess whether circumstances require updating the terms.
Frequently Asked Questions
Related Topics
Audit Planning
Audit planning is the process of developing an overall strategy and detailed approach for the expected nature, timing, and extent of an audit engagement.
Auditor Independence
Auditor independence requires that the auditor be free from financial interests, relationships, or influences that could compromise objectivity, encompassing both independence in fact and in appearance.
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