An Audit Engagement Letter is a written agreement that outlines the scope of your work as an auditor, what your client is responsible for, and how long the audit is estimated to take. It’s a binding contractual agreement that protects you and your clients from any misunderstandings throughout the process.
Whether you are an independent accountant or a CPA firm, drafting and sending an audit engagement letter is a must. Audit engagement letters clarify essential details of the auditing process and help prevent scope creep, which can cause costly delays and frustration for both parties. They are usually sent to new clients shortly after verbal confirmation of their appointment, or in the case of an existing client, before any audit work is started.
The audit engagement letter should clearly outline the services to be provided, a timeline for completion and associated deliverables, an estimate of professional fees and associated costs, a breakdown of how those estimates were calculated, and specific provisions for travel and other direct cost reimbursement. In addition, the letter should also set out a mediation or arbitration clause to mitigate potential legal disputes in the unlikely event of a conflict.
The audit engagement letter should also include a disclaimer that the auditor’s role is limited to ensuring compliance with applicable laws and reporting standards, and does not extend to an investigation into any potential fraud or other illegal activities on the part of the client. Lastly, the letter should include a request that a person authorized to do so signs and returns a copy of the letter, which both the auditor and client should keep a record of.