Engagement letter Company XXX

EXAMPLE OF AN AUDIT ENGAGEMENT LETTER

The following is an example of an audit engagement letter for an audit of general purpose financial
statements prepared in accordance with International Financial Reporting Standards. This letter is not
authoritative but is intended only to be a guide that may be used in conjunction with the considerations
outlined in ISA 210. It will need to be varied according to individual requirements and circumstances. It is
drafted to refer to the audit of financial statements for a single reporting period and would require
adaptation if intended or expected to apply to recurring audits (see ISA 210 paragraph 13). It may be
appropriate to seek legal advice that any proposed letter is suitable.

***
To the appropriate representative of management or those charged with governance of ABC
Company:1

[The objective and scope of the audit]

You2 have requested that we audit the financial statements of ABC Company, which comprise the
balance sheet as at December 31, 20X1, and the income statement, cash flow statement for the year
then ended, and a summary of significant accounting policies and other explanatory information. We
are pleased to confirm our acceptance and our understanding of this audit engagement by means of
this letter.

The objectives of our audit are to obtain reasonable assurance about whether the financial
statements as a whole are free from material misstatement, whether due to fraud or error, and to
issue an auditor's report that includes our opinion. Reasonable assurance is a high level of
assurance, but is not a guarantee that an audit conducted in accordance with International Standards
on Auditing (ISAs) will always detect a material misstatement when it exists. Misstatements can arise
from fraud or error and are considered material if, individually or in the aggregate, they could
reasonably be expected to influence the economic decisions of users taken on the basis of these
financial statements.

[The responsibilities of the auditor]

We will conduct our audit in accordance with ISAs. Those standards require that we comply with
ethical requirements. As part of an audit in accordance with ISAs, we exercise professional judgment
and maintain professional skepticism throughout the audit. We also:

· Identify and assess the risks of material misstatement of the financial statements, whether
due to fraud or error, design and perform audit procedures responsive to those risks, and
obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The
risk of not detecting a material misstatement resulting from fraud is higher than for one
resulting from error, as fraud may involve collusion, forgery, intentional omissions,
misrepresentations, or the override of internal control.
1
The addressees and references in the letter would be those that are appropriate in the circumstances of the
engagement, including the relevant jurisdiction. It is important to refer to the appropriate persons — see ISA 210
paragraph A22.
2
Throughout this letter, references to "you," "we," ``us," "management," "those charged with governance" and
"auditor" would be used or amended as appropriate in the circumstances.

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Engagement letter Company XXX

· Obtain an understanding of internal control relevant to the audit in order to design audit
procedures that are appropriate in the circumstances, but not for the purpose of expressing
an opinion on the effectiveness of the entity's internal control. 3 However, we will
communicate to you in writing concerning any significant deficiencies in internal control
relevant to the audit of the financial statements that we have identified during the audit.

· Evaluate the appropriateness of accounting policies used and the reasonableness of

accounting estimates and related disclosures made by management.

· Conclude on the appropriateness of management's use of the going concern basis of

accounting and, based on the audit evidence obtained, whether a material uncertainty exists
related to events or conditions that may cast significant doubt on the Company’s ability to
continue as a going concern. If we conclude that a material uncertainty exists, we are
required to draw attention in our auditor's report to the related disclosures in the financial
statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are
based on the audit evidence obtained up to the date of our auditor's report. However, future
events or conditions may cause the Company to cease to continue as a going concern.

· Evaluate the overall presentation, structure and content of the financial statements,
including the disclosures, and whether the financial statements represent the underlying
transactions and events in a manner that achieves fair presentation.

Because of the inherent limitations of an audit, together with the inherent limitations of internal control,
there is an unavoidable risk that some material misstatements may not be detected, even though the
audit is properly planned and performed in accordance with ISAs.

[The responsibilities of management and identification of the applicable financial reporting framework
(for purposes of this example it is assumed that the auditor has not determined that the law or
regulation prescribes those responsibilities in appropriate terms; the descriptions in paragraph 6(b)
of ISA 210 are therefore used).]

Our audit will be conducted on the basis that [management and, where appropriate, those charged
with governance]4 acknowledge and understand that they have responsibility:

(a) For the preparation and fair presentation of the financial statements in accordance with
International Financial Reporting Standards;5

(b) For such internal control as [management] determines is necessary to enable the
preparation of financial statements that are free from material misstatement, whether due to
fraud or error; and

(c) To provide us with:6

3
This sentence would be modified, as appropriate, in circumstances when the auditor also has responsibility to
issue an opinion on the effectiveness of internal control in conjunction with the audit of the financial statements.

4
Use terminology as appropriate in the circumstances.

5
Or, if appropriate, "For the preparation of financial statements that give a true and fair view in accordance with
International Financial Reporting Standards."

6
See ISA 210 paragraph A24 for examples of other matters relating to management's responsibilities that may be
included.

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Engagement letter Company XXX

(i) Access to all information of which [management] is aware that is relevant to the
preparation of the financial statements such as records, documentation and
other matters;

(ii) Additional information that we may request from [management] for the
purpose of the audit; and

(ii) Unrestricted access to persons within the entity from whom we determine it
necessary to obtain audit evidence.

As part of our audit process, we will request from [management and, where appropriate, those
charged with governance], written confirmation concerning representations made to us in connection
with the audit.

We look forward to full cooperation from your staff during our audit.

[Other relevant information]

[Insert other information, such as fee arrangements, billings and other specific terms, as
appropriate.]

[Reporting]

[Insert appropriate reference to the expected form and content of the auditor's report including,
if applicable, the reporting on other information in accordance with ISA 720 (Revised).]

The form and content of our report may need to be amended in the light of our audit findings.

Please sign and return the attached copy of this letter to indicate your acknowledgement of and
agreement with, the arrangements for our audit of the financial statements including our respective
responsibilities.

XYZ & Co.

Acknowledged and agreed on behalf of ABC Company by

(signed)
Name and Title Date

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