Audit Engagement Letter

SA 210 deals with Agreeing the Terms of Audit Engagements. The engagement letter has the following functions:

• To define the scope of the audit in the event that it is not defined by statute.
  
• To confirm any verbal agreements, including the basis on which fees will be charged.
  
• To confirm any other services which are to be provided, or to point out other services which may possibly be of interest and value to the client.
  
• To emphasise that the directors are primarily responsible for producing ‘true and fair’ accounts.
  
• To explain in outline how the auditor will approach his task; this can assist considerably in preventing future misunderstandings.
  
• To stress that the audit should not be relied upon necessarily to prevent or detect fraud and error as this is not its main purpose; although it should also be stressed that normal audit procedures can be expected to considerably reduce the likelihood of such occurrences.