What is an Engagement Letter in Auditing

When it comes to auditing, an engagement letter is a written agreement between an auditor and client outlining the professional responsibilities of both parties. Effective engagement letters are an important tool to help protect firms from lawsuits and provide clarity for both the customer and the auditor, preventing misunderstandings and providing a legal basis for contract performance.

A good engagement letter will identify the specific services that are to be provided to the client and should include a detailed explanation of those services. In addition, the letter should clearly establish professional fee structures for both professional staff and partners as well as for travel costs. This will help prevent disputes over fees and can serve as a record of what the audit will cost. It should also include a disclaimer that the audit is limited to professional standards and GAAP requirements and not intended to provide an investigation of fraud or other illegal activities.

An effective engagement letter will also set out the timeline for performing the fieldwork for the audit and a clear indication of when it will be completed. This will help to avoid misunderstandings about regulatory deadlines and can help to ensure that the auditor can complete the audit within the required timeframe. It should also cite any services that lie outside of the audit scope but could be included in future agreements, with an estimate of their cost.

An engagement letter should be sent to all new clients soon after verbal confirmation of their appointment and ideally prior to the commencement of any audit work. It should also be sent to existing audit clients who have not previously received one and for whom it is deemed appropriate. what is an engagement letter in auditing

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