Example of an Audit
Engagement Letter
Audit of Financial
Statements under the Companies Act 2013 and the Rules Thereunder
(When Reporting u/s
143(3)(i) of the Companies Act, 2013 is Not Applicable)
(to be added to
Appendix 1 to SA 2101)
To,
The Board of Directors of
……………… (name of the Entity)
(Address)
Dear Sirs,
I / We refer to the letter dated
_________ informing me / us about my / our (re) appointment/ratification as the
auditors of the Company. You have requested that I / we audit the financial
statements of the Company as defined in Section 2(40) of the Companies Act,
2013 (‘2013 Act’), for the financial year(s) beginning April 1, 20XX and ending
March 31, 20YY2. The financial statements of the Company include, where
applicable, consolidated financial statements of the Company and of all its
subsidiaries, associate companies and joint ventures. I am / We are pleased to
confirm my / our acceptance and my / our understanding of this audit engagement
by means of this letter.
My / Our audit will be conducted
with the objective of me / our expressing an opinion if the aforesaid financial
statements give the information required by the 2013 Act in the manner so required,
and give a true and fair view in conformity with the applicable accounting
principles generally accepted in India, of the state of affairs of the Company
as at 31st March, 20YY, and its profit/loss and its cash flows for the year
ended on that date. In forming my / our opinion on the financial statements, I
/ we will rely on the work of branch auditors appointed by the Company and my /
our report would expressly state the fact of such reliance.3
I / We will conduct my / our
audit in accordance with the Standards on Auditing (SAs), issued by the
Institute of Chartered Accountants of India (ICAI) and deemed to be prescribed
by the Central Government in accordance with Section 143(10) of the 2013 Act.
Those Standards require that I / we comply with ethical requirements and plan
and perform the audit to obtain reasonable assurance about whether the
financial statements are free from material misstatements. An audit involves
performing procedures to obtain audit evidence about the amounts and the
disclosures in the financial statements. The procedures selected depend on the
auditor’s judgment, including the assessment of the risks of material
misstatement of the financial statements, whether due to fraud or error.
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. In making our risk
assessments, we consider internal control relevant to the entity’s preparation
of the financial statements in order to design audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the entity’s internal control. However, we will
communicate to you in writing concerning any significant deficiencies in
internal control relevant to the audit of the financial statements that we have
identified during the audit.
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:
(c) Identifying and informing me
/ us of :
- 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. - 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 provisions
of Section 143(12) and 143(13) 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. 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 my / 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 my / 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.
{Other relevant information} {Insert
Other information, such as fee arrangements, billings 4 and other specific
terms, as appropriate.}
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 of auditors would need to be ratified at each AGM
u/s 139 of the 2013 Act.
3 Delete 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
