What is an Audit Engagement Letter? (Importance, Sample, and More)

An audit engagement letter can be defined as an agreement that is signed between a client, and an accounting firm, in order to maintain the existing accounting functionality of the business.

This document indicates the beginning of the audit engagement of the company with the audit partner, formally.

The audit Engagement Letter is sent out when the audit process begins in order to avoid misunderstandings relating to the audit process.

The engagement letter is created to document and confirm the appointment of the auditor with the subsequent acceptance of the auditor.

It includes the objective of an audit of financial statements, management’s responsibility for the financial statements, and the scope of the audit, in addition to the form of any report or any other communication that should be clarified and agreed upon between the auditor and the engagement partner.

Sample of Audit Engagement Letter

Importance of Audit Engagement Letter

The need for an audit engagement letter mainly stems from the reason for ensuring that there is proper communication between the auditor and the engagement party regarding the scope of work. It also includes subsequent limitations during the course of the audit.

This is a considerably important part because it helps to establish a favorable communication channel between both parties so that there are no expectation gaps in the near future.

In the same manner, it also states the respective duty that the party is going to perform over the course of the contract.

This helps to dissect responsibilities in the sense that the management is responsible for the preparation of financial statements, whereas the auditor is responsible for ensuring that these financial statements have not been understated or misused.

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It is highly important to emphasize and focus on the scope of the auditor in this regard, essentially because of the reason that it shows the areas which are supposed to be completed by the auditor.

This subsequently acts as an aid to the auditor in the sense that it helps the auditor gauge the resources required to complete the audit and the relevant planning that is necessary in this regard.

As a matter of fact, it also talks about the fee that would be paid to the auditor for the services, and when the payment is going to be made.

Therefore, this is the amount that is decided upon well in advance, so that there is no confusion or misunderstandings relating to the financial aspect of the company.

This tends to be important because it helps the audit partner to plan their year well in advance, in terms of the overall clientele they can manage over the year.

The audit engagement letter can simply be termed as a service agreement between the auditor and the company, which is a formality that is supposed to be completed in order to ensure that the company is able to maximize its results, for the best outcomes.

Hence, in this regard, it is imperative that the audit engagement letter be used in order to minimize the chance of misunderstanding between both parties because most of the clauses would have been agreed upon well in advance.

The audit engagement letter, therefore, acts as proof that the auditor is supposed to take care of the respective agreed-upon components of the audit so that they are able to achieve better outcomes.

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It helps the auditors plan the audit in a better manner, which is effective in terms of delivering the required results in a much more proficient manner.

In the case of unprecedented circumstances, audit engagement letters are mostly used as tools to solve the dispute, because they include almost all the important covenants that might occur during the course of the audit itself.

Finally, it can be seen that the audit engagement letter is considered an important phenomenon because it helps the auditor execute the audit process keeping in mind the scope of the audit, and how it has to be executed in order to achieve accurate results.


There is no doubt about the fact that audit engagement letters can be termed as increasingly important tools that can help auditors as well as their clients in establishing a written contract that reflects the agreed-upon terms and conditions of the audit process.

As a matter of fact, audit documentation tends to be an integral part of the overall audit process, and it all starts with the audit engagement letter.

Without this letter, there is room for misunderstandings, and confusion between the parties, which would be highly unproductive and might result in unfavorable outcomes for both parties.