The audit engagement letter, generally, should include a reference to each of the following except

SAS No. 27 Terms of Audit Engagements

Status

Revised by Auditing Standards Committee in Taiwan on 22 February, 2000.

Summary

The auditor and the client should agree on the terms of the engagement. The agreed terms would need to be recorded in an audit engagement letter or other suitable form of contract. The engagement letter documents and confirms the auditor’s acceptance of the appointment, the objective and scope of the audit, the extent of the auditor’s responsibilities to the client and the form of any reports.

The form and content of audit engagement letters would generally include reference to:

• The objective of the audit of financial statements;
• Management’s responsibility for the financial statements;
• The scope of the audit, including reference to applicable regulations or auditing standards;
• The form of any reports or other communication of results of the engagement;
• The fact that because of the test nature and other inherent limitations of an audit, together with the inherent limitations of internal control, there is an unavoidable risk that even some material misstatement may remain undiscovered; and
• Unrestricted access to whatever records, documentation and other information requested in connection with the audit.
• Expectation of receiving from management written confirmation concerning representations made in connection with the audit.
• Fees and billing arrangements.
• Signoffs and dates of the engagement letters by the auditor and its client.

The auditor may also wish to include the following in the letter:

• Arrangements regarding the planning and performance of the audit.
• Description of any other letters or reports the auditor expects to issue to the client.
• Basis on which fees are computed and any billing arrangements.
• Conditions for terminating the engagements.
• Arrangements to be made with the predecessor auditor, if any, in the case of an initial audit.
• Arrangements concerning the involvement of other auditors and experts in some aspects of the audit.
• Arrangements concerning the involvement of internal auditors and other client staff.
• Any restriction of the auditor’s liability when such possibility exists.
• A reference to any further agreements between the auditor and the client.

When the auditor of a parent entity is also the auditor of its subsidiary, branch or division (component), the factors that influence the decision whether to send a separate engagement letter to the component include the following:

• Who appoints the auditor of the component.
• Whether a separate auditor’s report is to be issued on the component.
• Legal requirements.
• The extent of any work performed by other auditors.
• Degree of ownership by parent.

Effective date

This Statement is effective from 22 February, 2000.