Format of Audit Engagement Letter for Audit of Financial Statements under the Companies Act 2013, When Reporting u/s 143(3)(i) is Applicable

The terms of reference
for my / our audit of internal financial controls over financial reporting
carried out
in conjunction with our audit of the Company’s financial statements will be as
stated in the separate engagement letter for conducting such audit and
should be read in conjunction with this letter.

An audit also includes
evaluating the appropriateness of the accounting policies used and the
reasonableness of accounting estimates made by the Management, as well as
evaluating the overall presentation of the financial statements.

Because of the inherent
limitations of an audit, including the possibility of collusion or improper
management override of controls, there is an unavoidable risk that material
misstatements due to fraud or error may occur and not be detected, even though
the audit is properly planned and performed in accordance with the SAs. Also,
projections of any evaluation of the internal financial controls over financial
reporting to future periods are subject to the risk that the internal financial
control over financial reporting may become inadequate because of changes in
conditions, or that the degree of compliance with the policies or procedures
may deteriorate.

My / Our audit will be
conducted on the basis that the Management and those charged with governance
(Audit Committee / Board) acknowledge and understand that they have the
responsibility:

(a)    For the preparation of financial statements that
give a true and fair view in accordance with the applicable Financial Reporting
Standards and other generally accepted accounting principles in India. This
includes:

·        
Compliance with
the applicable provisions of the 2013 Act;

·        
Proper
maintenance of accounts and other matters connected therewith;

·        
The
responsibility for the preparation of the financial statements on a going
concern basis;

·        
The
preparation of the annual accounts in accordance with, the applicable
accounting standards and providing proper explanation relating to any material
departures from those accounting standards;

·        
Selection
of accounting policies and applying them consistently and making judgments and
estimates that are reasonable and prudent so as to give a true and fair view of
the state of affairs of the Company at the end of the financial year and of the
profit and loss of the Company for that period;

·        
Taking
proper and sufficient care for the maintenance of adequate accounting records
in accordance with the provisions of the 2013 Act for safeguarding the assets
of the Company and for preventing and detecting fraud and other irregularities;

 ·        
Laying
down internal financial controls to be followed by the Company and that such
internal financial controls are adequate and were operating effectively; and

·        
Devising
proper systems to ensure compliance with the provisions of all applicable laws
and that such systems were adequate and operating effectively.

(b)   Identifying and informing me / us of financial
transactions or matters that may have any adverse effect on the functioning of
the Company.

(c)   
Identifying and
informing me / us of :

·     
All
the pending litigations and confirming that the impact of the pending
litigations on the Company’s financial
position has been disclosed in its financial statements;

·     
All
material foreseeable losses, if any, on long term contracts including
derivative contracts and the accrual for such losses as required under any law
or accounting standards; and

·     
Any
delay in transferring amounts, required to be transferred, to the Investor
Education and Protection Fund by the Company.

(d)   Informing me / us of facts that may affect the
financial statements, of which Management may become aware during the period
from the date of my / our report to the date the financial statements are
issued.

(e)  Identifying and informing me / us as to whether any director is
disqualified as on March 31, 20YY from being appointed as a director in terms
of Section 164 (2) of the 2013 Act. This should be supported by written
representations received from the directors as on March 31, 20YY and taken on
record by the Board of Directors.

(f)   
To provide me /
us, inter alia, with:

(i)                
Access,
at all times, to all information, including the books, accounts, vouchers and
other records and documentation of the Company, whether kept at the Head Office
or elsewhere, of which the Management is aware that are relevant to the
preparation of the financial statements such as records, documentation and other
matters. This will include books of account maintained in electronic mode;

(ii)              
Access,
at all times, to the records of all the subsidiaries (including associate
companies and joint ventures as per Explanation to Section 129(3) of the 2013
Act) of the Company in so far as it relates to the consolidation of its
financial statements, as envisaged in the 2013 Act;

(iii)            
Access
to reports, if any, relating to internal reporting on frauds (e.g., vigil
mechanism reports etc.), including those submitted by cost accountant or
company secretary in practice to the extent it relates to their reporting on
frauds in accordance with the requirements of Section 143(12) of the 2013 Act;

(iv)            
Additional
information that I / we may request from the Management for the purposes of my
/ our audit;

(v)              
Unrestricted
access to persons within the Company from whom I / we deem it necessary to
obtain audit evidence. This includes my / our entitlement to require from the
officers of the Company such information and explanations as I / we may think
necessary for the performance of my / our duties as the auditors of the
Company; and

(vi)            
All
the required support to discharge my / our duties as the statutory auditors as
stipulated under the Companies Act, 2013/ ICAI standards on auditing and
applicable guidance.

As part of my / our audit process, I / we will request from the
Management written confirmation concerning representations made to me / us in
connection with my / our audit.

My / Our report prepared in accordance with relevant provisions of the
2013 Act would be addressed to the shareholders of the Company for adoption of
the accounts at the Annual General Meeting. In respect of other services, my /
our report would be addressed to the Board of Directors. The form and content
of my / our report may need to be amended in the light of my / our audit
findings.

In accordance with the requirements of Section 143(12) of the 2013 Act,
if in the course of performance of my / our duties as auditor, I / we have
reason to believe that an offence involving fraud is being or has been
committed against the Company by officers or employees of the Company, I / we
will be required to report to the Central Government, in accordance with the
rules prescribed in this regard which, inter alia, requires me / us to
forward my / our report to the Board or Audit Committee, as the case may be,
seeking their reply or observations, to enable me / us to forward the same to
the Central Government.

As stated above, given that I am / we are required as per Section
143(12) of the Act to report on frauds, such reporting will be made in good
faith and, therefore, cannot be considered as breach of maintenance of client
confidentiality requirements or be subject to any suit, prosecution or other
legal proceeding since it is done in pursuance of the 2013 Act or of any rules
or orders made thereunder.

I / We also wish to invite your attention to the
fact that our audit process is subject to ‘peer review’ / ‘quality
review’ under the Chartered Accountants Act, 1949. The
reviewer(s) may inspect, examine or

take
abstract of my / our working papers during the course of the peer
review/quality review.

I / We may involve specialists and staff from our affiliated network
firms to perform certain specific audit procedures during the course of my /
our audit.

In terms of Standard on Auditing 720 –
“The Auditor’s Responsibility in Relation to Other Information in Documents Containing Audited Financial Statements” issued by the ICAI and deemed to be

prescribed by the Central Government in accordance with Section 143(10)
of the 2013 Act , I / we request you to provide to me / us a Draft of the
Annual Report containing the audited financial  statements so as to enable me / us to read the same
and communicate material inconsistencies, if any, with
the audited financial statements, before issuing the auditor’s report on the
financial statements.

 This letter should be read in conjunction with my / our letter dated ___
for the Audit of Internal Financial Controls Over Financial Reporting under the
2013 Act, in respect of which separate fees have been fixed/will be mutually agreed.

I
/ We look forward to full cooperation from your staff during my / our audit.

Please sign and return the attached copy of this letter to indicate your
acknowledgement of, and agreement with, the arrangements for my / our audit of
the financial statements including our respective responsibilities.

Yours faithfully,

(signature)

(Name of the Member)
(Designation)⁵

(Name
of the Firm)

Date:

Place:

Copy to: Chairman,
Audit Committee

Acknowledged on behalf
of <<Name of the entity>>

Name
and Designation: _________________

Date:  ______________

¹  
Standard
on Auditing (SA) 210, Agreeing the Terms of Audit Engagement.

²  An
Engagement Letter may need to be entered into for each year of the period
covered by the Eligibility Letter issued by the auditor u/s 139 and the
Appointment Letter received from the Company, to supplement / update for any
subsequent changes. This may be required because the appointment would need to
be ratified at each AGM u/s 139 of the 2013 Act.

³Delete
sentence on branch auditors where not applicable.

4 For example, “My /
Our fees and out-of-pocket expenses for the audit of the financial statements
for the year have been fixed by the members at the Annual General Meeting at Rs.____________,
plus out-of-pocket expenses and indirect taxes/ will be mutually agreed between
the Board of Directors of the Company and me / ourselves.* I / We will bill as
the work progresses. I / We will notify you promptly of any circumstances I /
we encounter that could significantly affect my / our estimate of fees and
discuss with you any additional fees, as necessary.”

⁵ Partner or proprietor, as the case
may be.

* delete as applicable

Source : ICAI