What is Audit Engagement Letter?


List the important matters that are required to be included in an audit engagement letter.

Ans. Key Components of Audit engagement letter:

  • The objective and scope of the audit of financial statements;
  • The responsibilities of the auditor;
  • The responsibilities of management;
  • Identification of the applicable financial reporting framework for the preparation of the financial statements;
  • Reference to the expected form and content of any reports to be issued by the auditor and;
  • A statement that there may be circumstances in which a report may differ from its expected form and content.

The audit engagement letter specifies objective and scope of audit, responsibilities of auditor and management, applicable financial reporting framework and form and contents of audit report. State any four additional matters that may be included in the engagement letter.

Additional matters that can be included in the engagement letter:

  • Additional details on the scope of the audit, such as reference to applicable legislation, regulations, ISAs, and ethical pronouncements.
  • The fact that because of the inherent limitations of an audit, and the inherent limitations of the internal control, there is an unavoidable risk that some material misstatements may not be detected even though the audit was properly planned and performed in accordance with ISAs.
  • Arrangements regarding the planning and performance of the audit, including the composition of the audit team.
  • The expectation that management will provide written representations.

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