An engagement letter defines the legal relationship or engagement between a professional firm and its clients. The letter details the terms, conditions, and compensation arrangement of the professional relationship. These letters are commonly required by services firms engaged in tax, audit, finance, consulting, and legal advice.
The audit engagement letter states the terms and conditions of the engagement, principally addressing the scope of the engagement and the terms of compensation for the firm. It is a written agreement that defines the legal relationship between a client and professional company.
The term “audit engagement letter” in this standard refers to a written contract entered into by the accounting firm and the client. Its purposes are to confirm the relationship between the client engaging the auditor and the accounting firm accepting the audit engagement and to define matters such as the objectives of the engagement, the scope of the audit, the responsibilities and duties of each party etc. The audit engagement letter has statutory binding force.
When a company has to go through the audit process, an auditor may use the term “audit engagement.” This can mean a different thing, so it is important that the auditor clarify what he means when he uses the term. Regardless of which definition the auditor follows, however, the auditor always follows specific procedures and guidelines for handling the engagement.