Evaluating the Auditors Engagement LetterQuestions to Consider


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Purpose of This Tool. The board of directors or appointed committee such as the audit committee having the responsibility to hire, fire, and evaluate the independent auditors should discuss a series of questions about the audit engagement letter (service agreement) with the independent auditor in discharging this responsibility.

If this is the initial audit of the organization by the audit firm, the engagement letter should be reviewed to ensure that the terms of the letter are consistent with those that were stated in the proposal received by the organization in response to its request for proposal.

The financial management of the organization should be consulted regarding its agreement with the details of the audit engagement, including timing of the work and the level of assistance to be provided by the organizations staff.

Instructions for Using This Tool. The sample questions included in this tool are a starting point to evaluating the engagement letter with the independent auditors. Audit committee members should answer the following questions with consultation of the auditor and financial management as needed.

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Evaluating the Auditors Engagement Letter	Yes	No	Not Sure	Comments
Does the engagement letter address the scope of work to be performed? Audit of financial statements Supplemental information Compliance reports GAGAS (Generally Accepted Government Auditing Standards)Yellow Book OMB requirementsSingle Audit OMB Circular A-133 Tax filings Other requirements	□	□	□
Does the engagement letter include a timetable for the audit work including dates for: Interim fieldwork, if applicable Provision of year-end trial balance Completion of client-prepared schedules Beginning of year-end fieldwork End of year-end fieldwork Delivery of draft of financial statements Delivery of final financial statements Delivery of management letter, if applicable Required communications letter (Statement on Auditing Standards No. 61, Communication With Audit Committees) Meetings with audit committee	□	□	□
Does the letter discuss third-party reliance on the auditors report?	□	□	□
Does the letter identify the persons or entities that will use the audit report and for what purpose?	□	□	□
Does the letter include estimates of the professional fees to be charged for the engagement and make provision for the handling of out-of pocket expenses?	□	□	□
Does the letter provide for an agreed-upon process for changes in the scope of work?	□	□	□
Does the letter indicate the payment terms for the fees and costs and whether there are any finance charges for late payment?	□	□	□
Are mediation or arbitration terms discussed should a dispute or claim arise in connection with the performance or breech of the engagement agreement?	□	□	□
Does the letter contain a severability clause to address the possibility that a portion of the letter may be determined to be invalid?	□	□	□
Does the engagement letter require a written acceptance by the organization?	□	□	□
Does the letter include discussion of assistance that is expected to be provided during the audit by the organizations personnel?	□	□	□
Does the letter address how adjustments below the auditors materiality threshold will be handled? (e.g., Does it address how they will be communicated to management for possible recording in the subsequent years financial statements?)	□	□	□
Does the letter address the use of e-mail communications and related disclaimers regarding privacy?	□	□	□
Does the letter address the provision of a safe environment by the organization for the audit staff?	□	□	□
Does the letter address the auditors record retention policy?	□	□	□
Does the letter address how the auditor will respond to circumstances that create a potential or actual conflict of interest?	□	□	□
Does the letter address how the auditor will respond to outside inquires related to the audit engagement?	□	□	□
Does the letter discuss the auditors privacy policy regarding the organizations financial information?	□	□	□
Does the letter include a schedule of information to be provided by the organization, such as permanent file documents and schedules prepared by the organizations staff in connection with the audit engagement?	□	□	□
Does the letter indicate that nonattest services are excluded from this engagement and are subject to a separate written understanding before any additional services are commenced?	□	□	□
Other Comments, Additional Questions

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