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Why an auditor should prepare a letter of engagement.
The auditor and the client should agree on the terms of the engagement. The agreed terms should
be recorded in an audit engagement letter or other suitable form of contract. It is in the interest of
both the client and auditor that the auditor sends an engagement letter, preferably before the
commencement of the engagement.
The purpose of an engagement letter
• The letter defines the scope of work to be carried out and the respective responsibilities
of the auditor and the client under the engagement. This helps in avoiding
misunderstandings between the client and the auditor as regards to the scope of the work
to be carried out and the respective responsibilities of both parties.
• The letter documents and confirms the auditor's acceptance of the appointment
• It explains the forms of any reports to be issued under the engagement
• To educate the client on:-
i. His duty to maintain proper books of accounts and to prepare financial statements
that show a true and fair view.
ii. His duty to prevent errors and. frauds.
iii. His duty to provide all the necessary information
iv. That the audit should not be relied upon to detect errors and frauds.
v. To explain the audit will be carried out on a test basis.
vi. Basis of charging his fees.
• Minimise auditor's liability to third parties.
• Commit client to his obligations in an audit.
Kavungya answered the question on May 14, 2019 at 12:38
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