Every Audit Should Start With An Audit Engagement Letter
A well drafted audit engagement letter will help to set out the agreement regarding
scope of services to be performed, what the individual party's responsibilities are as well as the time frame of the work to be performed as well as expected fees. The auditing section of the American Institute of CPA Professional Standards does not say much on this subject though certain specific elements are mentioned as well as accounts or items, though no example of an audit engagement letter is available.The audit engagement letter is useful in the long term especially if either party should need to take matters to court. However, according to the manuals, a CPA does not necessarily have to give out such a letter more than a single time in a given year and the letter that is issued can cover many different types of services. The audit engagement letter should limit the responsibility of the accountant to a specified interval which should help not to encourage making of any claims regarding work done or performed during another time period.
The audit engagement letter should specify the responsibilities of both the client as well as the auditor and this is of great importance for write-up work which would culminate in preparing the financial statements for the client. Sometimes, the CPA may give advice regarding different and competing accounting principles and the audit engagement letter provides a means to establish that the client is responsible for deciding which accounting principle to use.
The audit engagement letter may also refer to the possibility of failing to detect risks because of inherent limitations of the audit process itself. And the audit procedures section should state that the accountant takes responsibilities for obtaining a complete understanding of the company's internal control structure thereby showing to the client the importance of controls for auditing purposes.
There may also be something about the restrictions pertaining to scope of work to impress the client how important early notification to the auditor is so that the work progress smoothly and without consequent increase in fees. There should also be a fraud detection paragraph to limit how much the CPA is liable in case of failure to detect errors as well as irregularities. There must be given reason why boundaries are set as regards responsibility as well as give some assurance to the client that policies of the firm are in conformance and indeed reflect the highest professional standards.
There may also be mentioned in the audit engagement letter assurances about internal controls reporting conditions of the company's financial dealings and that if any improvement is to be made that these will be implemented. Having a section that helps to specify performance improvements will be possible which the client should find especially desirable.
The audit engagement letter form is readily available in the market and finding one should not pose any problem as there are many vendors who specialize in such documents and for a few dollars one may obtain completely researched and well formed audit engagement letter form. There is no need for researching and creating one from scratch as buying these documents provides an avenue for obtaining comprehensively created solutions that have had experts draft them and they are suited for all manner of use. Spending a few dollars, one could reap great benefits as there is plenty to be saved in terms of time, money and cost as well as being tailored to suit individual requirements.
by: Wade Anderson