Auditor Appointment Note — ICAI Audit Working Paper
(Following draft may be used)
Standard on Auditing (SA) 210, “Agreeing the Terms of Audit Engagements” deals with the auditor’s responsibilities in agreeing to the terms of the audit engagement with management and, where appropriate, those charges with governance. SA 210 establishes the preconditions for an audit, terms of an audit engagement and changes thereof, segregates the responsibility of the management and auditors etc.
Auditor’s Objective is to accept or continue an audit engagement only when the basis upon which it is to be performed has been agreed, through
1. Ensuring if the Preconditions for an audit are present and
2. Confirming if there is a common understanding between auditor and management and, where appropriate, those charged with governance of the terms of the audit engagement.
Draft format of Engagement letter
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 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 (‘Act’), for the financial year(s) beginning April 1, 2xx2 and ending March 31, 2xx3. 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 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, 2xx3, and its profit/loss and its cash flows for the year ended on that date which, inter alia, includes reporting in conjunction whether the Company has an adequate internal financial controls system over financial reporting in place and the operating effectiveness of such controls. 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.
(User may delete sentence on branch auditors where not applicable)
I / We will conduct my / our audit in accordance with the Standards on Auditing (SAs), specified under Section 143(10) of the Act. Those Standards require that I / we comply with ethical requirements. As part of an audit in accordance with SAs, we exercise professional judgment and maintain professional skepticism throughout the audit. We also:
- • Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
- • Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances. Under section 143(3)(i) of the Companies Act, 2013, we are also responsible for expressing our opinion on whether the company has adequate internal financial controls system in place and the operating effectiveness of such controls.
- • Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.
- • Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the company’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the company to cease to continue as a going concern.
- • Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation.
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 controls 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:
- 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 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 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.
- Identifying and informing me / us of financial transactions or matters that may have any adverse effect on the functioning of the Company.
- 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.
- 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.
- Identifying and informing me / us as to whether any director is disqualified as on March 31, 2xx3 from being appointed as a director in terms of Section 164 (2) of the Act. This should be supported by written representations received from the directors as on March 31, 2xx3 and taken on record by the Board of Directors.
- To provide me / us, inter alia, with:
- 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;
- 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 Act) of the Company in so far as it relates to the consolidation of its financial statements, as envisaged in the Act;
- 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 Act;
- Additional information that I / we may request from the Management for the purposes of my / our audit;
- 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
- All the required support to discharge my / our duties as the statutory auditors as stipulated under the Companies Act, 2013/ 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 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 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 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 (SA) 720 (Revised), “The Auditor’s Responsibilities Relating to Other Information” issued by the ICAI and deemed to be prescribed by the Central Government in accordance with Section 143(10) of the 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 and other specific terms, as appropriate.}
This letter should be read in conjunction with my / our letter dated _____ for the Audit of Internal Financial Controls Over Financial Reporting under the 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 person)
(Designation)
(Name of the firm)
Date:
Place:
Acknowledged on behalf of XYZ Company Pvt Ltd
Name and Designation:
Date:
