Example of Engagement Letter

This form of letter is generally appropriate for client companies. It is not intended to be used in relation to every enterprise, as it must be tailored to specific circumstances. To the directors of XYZ ltd The purpose of this letter is to set out basis on which we (are to) act as the auditors of the company
(and its subsidiaries) and the respective areas of responsibility of the company and of ourselves.

1.1 As directors of the above company, you are responsible for maintaining proper accounting record and preparing financial statements which give a true and fair view and comply with the companies Act Cap 486. You are also responsiblefor making available to us, as and when required, all the company’s accounting records and all other records and related information, including minutes of all management and shareholders’ meeting

1.2 We have statutory responsibility to report to the members whether in our opinion the financial statements give a true and fair view of the state of the company’s affairs and of the profit and loss for the year and whether they comply with the companies Act cap 486.in arriving at our opinion, we are required to consider matters, and to report on any in respect of which we are not satisfied.

  • Whether proper accounting records have been kept by the company
  • Whether the company’s statement of financial position and income statement are in agreement with the accounting records
  • Whether we have obtained all the information and explanation which we think necessary for the purpose of our audit

1.3 We have professional responsibility to report if the financial statements do not in any material respect with International Auditing Standards and Kenyan Auditing Standards

1.4 Our audit will be conducted in accordance with Auditing Guidelines issued by Institute of Certified Public Accountants of Kenya (ICPAK) and will have regard to relevant Auditing Guidelines. Furthermore, it will be conducted in such tests of transactions and of the existence, ownership and valuation of assets and liabilities as we consider necessary. We shall obtain an understanding of the accounting system in order to assess the adequacy as a basis
of the preparation of the financial statements and to establish whether proper records have been maintained. We shall expect to obtain such relevant and reliable evidence as we consider sufficient to enable us to draw reasonable conclusions therefrom. The nature and the extent of our tests will vary according to our assessment of the company’s accounting systems, and where we wish to place reliance on it the system of internal control, and may cover any aspect of the business operations. We shall report to you any significant weaknesses in, or observations on, the company’s systems which come to our notice and
which we think should be brought to your attention. Our tests should not, however, be expected to identify all weaknesses in the company’s systems.

1.5 As part of our normal audit procedures, we may request you to provide written confirmation of oral representations which we have received from you during the course of the audit.

1.6 In order to assist us with the examination of your financial statements, we shall request sight of all documents or statements, including the chairman’s statement and directors’ report, which are due to be issued with the financial statements. We are also entitled to attend all general meetings of the company and to receive notice of all such meetings

1.7 (Where appropriate) we appreciate that the present size of your business renders it uneconomical to create a system of internal control based on the segregation of duties for different functions within each area of business. In the running of your company we understand that the directors are closely involved with the control of the company’s transactions. In planning and performing our audit work we shall take account of this supervision. Further, we may ask additionally for confirmation in writing that all the transactions undertaken by the company have been reflected and recorded in the accounting
records, and our audit report on your company’s financial statements may refer to this confirmation.

1.8 The responsibility for the prevention and detection of irregularities and fraud rests with you. However, we shall endeavour to plan our audit so that we have a reasonable expectation of detecting material misstatements in the financial statements or accounting records resulting from irregularities or fraud, but our examination should be relied upon to disclose irregularities and fraud which may exist.

2.0 (Where appropriate) Accounting and other services – Either include here or set out in a separate letter It was agreed that we should carry out the following services as your agents and on the basis that you will make full disclosure to us of all information. We shall:

2.1 Prepare the financial statements based on accounting records maintained by you

2.2 Provide assistance to the company secretary by preparing and lodging returns with the registrar of companies.

2.3 investigate irregularities and fraud upon receiving specific instructions

3.0 (Where appropriate) Taxation Services

3.1 Our engagement as tax advisors requires us to prepare and lodge with the Income Tax department provisional and final income tax returns along with their supporting computations and documents and financial statements and to review and advise you on correspondences or notices received from the tax authorizes.

3.2 We shall be pleased to advise you on matters relating to the company’s tax liability, the implication of particular business transactions and on other taxation matters you refer to us.

4.0 Fees

4.1 Our fees are computed on the basis of the time spent on your affairs by the partners and our staff, and on the levels of skill and responsibility involved. Unless otherwise agreed, our fees will be charged separately for each of the main classes of work described above, will be billed at appropriate intervals during the year and will be due on presentation.

5.0 Agreement of Terms

5.1 Once it has been agreed, this letter will remain effective from one audit appointment to another, until it is replaced. We shall be grateful if you could confirm in writing your agreement to terms of this letter, let us know if they are not in accordance with your understanding of our terms of appointment.

Yours faithfully

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