Section EXAMPLE OF AN ENGAGEMENT LETTER FOR A FI - ASA 210 - Terms of Audit Engagements - April 2006 - EXAMPLE OF AN ENGAGEMENT LETTER FOR A FINANCIAL REPORT AUDIT ENGAGEMENT | Zoe
EXAMPLE OF AN ENGAGEMENT LETTER FOR A FINANCIAL REPORT AUDIT ENGAGEMENT
The following example audit engagement letter is for use as a guide only, in conjunction with the mandatory requirements and explanatory guidance in this Auditing Standard, and will need to be varied according to individual needs and circumstances. The engagement letter is written in the context of an engagement to audit a general purpose financial report under the Corporations Act 2001.
To [the board of directors, those charged with governance or the appropriate representative of senior management]:
Scope
You have requested that we audit the financial report of [name of entity], which comprises the balance sheet as at 30 June 20XX, and the income statement, statement of changes in equity and cash flow statement for the year then ended, a summary of significant accounting policies, other explanatory notes and the directors’ declaration. We are pleased to confirm our acceptance and our understanding of this engagement by means of this letter. Our audit will be conducted with the objective of our expressing an opinion on the financial report.
We will conduct our audit in accordance with Australian Auditing Standards. Those Auditing Standards require that we comply with relevant ethical requirements relating to audit engagements and plan and perform the audit to obtain reasonable assurance whether the financial report is free from material misstatement. An audit involves performing audit procedures to obtain audit evidence about the amounts and disclosures in the financial report. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the financial report, whether due to fraud or error. An audit also includes evaluating the appropriateness of the financial reporting framework, accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial report.
Because of the test nature and other inherent limitations of an audit, together with the inherent limitations of any accounting and internal control system, there is an unavoidable risk that even some material misstatements may remain undiscovered.
In making our risk assessments, we consider internal control relevant to the entity’s preparation of the financial report 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. However, we expect to provide you with a separate letter concerning any material weaknesses in the design or implementation of internal control over financial reporting that come to our attention during the audit of the financial report.[2]
We take this opportunity to remind you that the responsibility for the preparation and fair presentation of the financial report in accordance with Australian Accounting Standards[3] (including the Australian Accounting Interpretations) and the Corporations Act 2001 is that of [the directors, those charged with governance or insert title]. Our auditor’s report will explain that [the directors, those charged with governance or insert title] are responsible for the preparation and the fair presentation of the financial report in accordance with the applicable financial reporting framework and this responsibility includes:
establishing and maintaining internal controls relevant to the preparation of a financial report that is free from misstatement, whether due to fraud or error;
selecting and applying appropriate accounting policies; and
making accounting estimates that are reasonable in the circumstances.
As part of our audit process, we will request from management written confirmation concerning representations made to us in connection with the audit.
Other Matters under the Corporations Act 2001
Independence
We confirm that, to the best of our knowledge and belief, we currently meet the independence requirements of the Corporations Act 2001 in relation to the audit of the financial report. In conducting our audit of the financial report, should we become aware that we have contravened the independence requirements of the Corporations Act 2001, we shall notify you on a timely basis. As part of our audit process, we shall also provide you with a written independence declaration as required by the Corporations Act 2001.
The Corporations Act 2001 includes specific restrictions on the employment relationships that can exist between the audited entity and its auditors. To assist us in meeting the independence requirements of the Corporations Act 2001, and to the extent permitted by law and regulation, we request you discuss with us:
the provision of services offered to you by [insert firm name] prior to engaging or accepting the service; and
the prospective employment opportunities of any current or former partner or professional employee of [insert firm name] prior to the commencement of formal employment discussions with the current or former partner or professional employee.
Annual General Meetings
The Corporations Act 2001 provides that shareholders can submit written questions to the auditor before an Annual General Meeting provided that they relate to the auditor’s report or the conduct of the audit. To assist us in meeting this requirement in the Corporations Act 2001 relating to Annual General Meetings, we request you provide to us written questions submitted to you by shareholders as soon as practicable after the question(s) is received and no later than five business days before the Annual General Meeting, regardless of whether you believe them to be irrelevant.
Presentation of Audited Financial Report on the Internet
It is our understanding that the entity intends to publish a hard copy of the audited financial report and auditor’s report for members, and to electronically present the audited financial report and auditor’s report on its internet web site. When information is presented electronically on a web site, the security and controls over information on the web site should be addressed by the entity to maintain the integrity of the data presented. The examination of the controls over the electronic presentation of audited financial information on the entity’s web site is beyond the scope of the audit of the financial report. Responsibility for the electronic presentation of the financial report on the entity’s web site is that of the governing body of the entity.
Fees
We look forward to full cooperation from your staff and we trust that they will make available to us whatever records, documentation and other information we request in connection with our audit.
[Insert additional information here regarding fee arrangements and billings, as appropriate.]
Please sign and return the attached copy of this letter to indicate that it is in accordance with your understanding of the arrangements for our audit of the financial report.