What is an engagement letter in terms of audit?

TERMS OF AUDIT ENGAGEMENTS 

The following is an example of an engagement letter prepared in accordance with International Financial Reporting Standards for an audit of general-purpose financial statements. This letter will be used in conjunction with the considerations outlined in this ISA as a guide and will need to be varied according to individual requirements and circumstances.

To the Board of Directors or the appropriate representative of senior management:

You have requested that we audit the financial statements of workers compensation, which comprise the balance sheet as at workers compensation audit and the statement of income, statement of changes in the statement of equity and cash flow for the year then ended, and a summary of important accounting policies and other explanatory notes. Through this letter, we are pleased to confirm our acceptance and understanding of this commitment. Our audit will be carried out with the purpose of giving our opinion on the financial statements.

Our audit will be conducted in accordance with International Auditing Standards. These standards require that we meet ethical requirements and plan and conduct the audit in order to obtain reasonable assurance that the financial statements are free of material mistakes. An audit involves conducting procedures to obtain audit evidence of the financial statements ' amounts and disclosures.

The selected procedures depend on the judgment of the auditor, including the risk assessment of the financial statements ' material mistake, whether due to fraud or error. An audit also includes assessing the appropriateness of the accounting policies used and the reasonableness of management's accounting estimates, as well as assessing the financial statements ' overall presentation.

Because of the nature of the test and other inherent limitations of an audit, along with the inherent limitations of any accounting and internal control system, there is an inevitable risk that some material misrepresentations may remain uncovered.

In carrying out our risk assessments, we consider internal control relevant to the preparation of the financial statements by the entity in order to design audit procedures that are appropriate in the circumstances, but not to express an opinion on the effectiveness of the internal control of the entity.

However, we expect to provide you with a separate letter regarding any material weaknesses in designing or implementing internal financial reporting control that comes to our attention during the audit of the financial statements.

We remind you that it is the responsibility of the company's management to prepare financial statements that fairly present the financial position, financial performance, and cash flows in accordance with International Financial Reporting Standards. The report of our auditors will explain that management is responsible for preparing and presenting the report fairly Financial statements in accordance with the Financial Reporting Framework applicable, including:

• Design, execution, and maintenance of internal control relevant to the preparation of financial statements free of errors, whether due to fraud or error ;
• Selecting and applying appropriate accounting policies; and
• Making accounting estimates that are appropriate in the circumstances.

As part of our audit process, we will request written confirmation from the management of the representations we have received in connection with the audit.

We look forward to your staff's full cooperation and are confident that they will make available to us whatever records, documentation, and other information are requested in connection with our audit.

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 statements.