Page 157 - DCOM509_ADVANCED_AUDITING

Advanced Auditing

Notes 9.2.1 Letter of Engagement

Once the appointment has been accepted, it is a normal practice to issue a letter of engagement
to the company specifying the terms and conditions of the assignment. The auditor should
incorporate in the letter the precise scope of work and nature of duties to be performed by him
in the company.

Notes A letter of engagement is a confirmation of acceptance of offer made by the company.

The principal contents of a letter of engagement are:
1. The nature of the assignment in the case of a statutory audit, it highlights the requirements
imposed by the Act which cannot be changed either by the company or auditor and the
significance of the audit report;
2. the way the auditor would normally approach the job, including the assistance and
cooperation which he expects from the company; and
3. the audit fees to be charged for the purpose.
A copy of the letter of engagement is also sent to the company for signature as an
acknowledgement of agreement as to terms. It is then returned to the auditor for his records.

Task Prepare the format of letter of engagement.

9.2.2 Preliminaries

By now you must have seen that audit is a professional assignment which demands its own
expertise. Preliminaries before commencement of the audit of a company need the following
approaches:
1. ‘Obtain a clearance from the previous auditor of the company whether there is-any
professional reason why the audit should not be accepted — this being a professional
etiquette.
2. Ensure that the appointment is in conformity with the provisions of the Act.
3. Consult the Articles and Memorandum of Association with special reference to the clauses
affecting accounts and audit.
4. Outline the nature and scope of work and, duties and the time of completion of audit
report.
5. Examine the system of accounting followed by the company and point out the weaknesses,
if any.

6. Get a list of books maintained in the company, persons responsible for maintaining them
and their specimen signatures.
7. Collect a list of officers of the company with their powers, duties and specimen signatures.

8. Familiarize with the technical knowledge about the company.
9. Enquire about the system of internal control in practice and evaluate its effectiveness.

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