[Date]
[Client Name]
[Client Address]
Re:
Engagement to Audit Financial Statements for [Client Name]
Dear [Client]:
We are pleased to confirm the terms and objectives of our engagement
with [Client] for the [year/fiscal year/period] ending [Date], and to clarify the
extent and limitations of the services we will provide.
[To perform our initial engagement, we must review the working
papers of your former auditors. You need to authorize [Name of Previous
Auditors] to make available to us the working papers they prepared in the
audit of your financial statements for the year ended [date, year]]
We will audit the balance sheet of [Client] as of [period of year-end] and
the related statements of revenues, expenses, and changes in fund balance and
cash flows for the [period, year] then ended.
Our audit will be made in accordance with U.S. generally accepted
auditing standards and will include tests of the accounting records of [Client]
and other procedures we consider necessary to enable us to express an
unqualified opinion that the financial statements are fairly presented, in all
material respects, in conformity with U.S. generally accepted accounting
principles. If our opinion is other than unqualified, we will fully discuss the
reasons with you in advance. If, for any reason, we are unable to complete the
audit, we will not issue a report as a result of this engagement.
Our procedures will include tests of documentary evidence that support
the transactions recorded in the accounts and direct confirmation of cash,
investments, and certain other assets and liabilities by correspondence with
creditors and financial institutions. These procedures may, for example, include
tests of the physical existence of inventories, and direct confirmation of
receivables. At the conclusion of our audit, we will request certain written
representations from you about the financial statements and related matters.
We will request written representations from your attorneys as part of the
engagement, and they may bill you for responding to that inquiry. At the
conclusion of our audit, we will also request certain written representations from
you about the financial statements and related matters.
An audit includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements; therefore, our audit will
involve judgment about the number of transactions to be examined and the areas
to be tested. Our audit is designed to provide reasonable, rather than absolute,
assurance of detecting misstatements that, in our judgment, could have a
material effect on the financial statements taken as a whole. Consequently, our
audit will not necessarily detect misstatements less than this materiality level
that might exist due to error, fraudulent financial reporting, or misappropriation
of assets.
Our audit is not specifically designed and cannot be relied on to disclose
reportable conditions, that is, significant deficiencies in the design or operation of
the internal control. However, during the audit, if we become aware of such
reportable conditions or ways that we believe management practices can be
improved, we will communicate them to you in a separate letter. By your
signature below, you acknowledge that you are responsible for the design and
implementation of programs and controls to prevent and detect fraud, and for
informing us about all known or suspected fraud affecting the company that
involves management, employees who have significant roles in internal control,
and others where the fraud could have a material effect on the financial
statements. You are also responsible for informing us of your knowledge of any
allegations of fraud or suspected fraud affecting the company received in
communications from employees, former employees, regulators, or others. You
agree that you will confirm your understanding of your responsibilities as
defined in this letter to us in your management representation letter. Our
responsibility as auditors is limited to the period covered by our audit and does
not extend to matters that might arise during any later periods for which we are
not engaged as auditors.
We understand that you will provide us with the basic information
required for our audit and that you are responsible for the accuracy and
completeness of that information. We will advise you about appropriate
accounting principles and their application and will assist in the preparation of
your financial statements, but the responsibility for the financial statements
remains with you. You acknowledge that management is responsible for
adjusting the financial statements to correct material misstatements and for
confirming to us in the management representation letter that the effects of any
uncorrected misstatements aggregated by us during the current engagement and
pertaining to the latest period presented are immaterial, both individually and in
the aggregate, to the financial statements taken as a whole. Other management
responsibilities include maintaining adequate records and related internal
control policies and procedures, selecting and applying accounting principles,
and safeguarding assets.
Our fees for these services will be at our standard hourly rates as they
relate to the individuals performing the services, plus out-of-pocket expenses [or
other appropriate description of fee arrangement].
In accordance with our firm policies, work may be suspended if your
account becomes 90 days or more overdue, and will not be resumed until your
account is paid in full. If we elect to terminate our services for nonpayment, our
engagement will be deemed to have been concluded upon our providing you
written notification of termination, even if we have not completed our work.
You will be obligated to compensate us for all time expended and to reimburse
us for all out-of-pocket expenditures through the date of termination. If we stop
work based on your account becoming delinquent, we will not be responsible for
any additional expense or damage caused by the work stoppage.
In the event we are requested by the Compan[y/ies], or are required by
government regulation, subpoena, or other legal process, to produce our
documents or our personnel as witnesses with respect to our engagements for
the Compan[y/ies], the Compan[y/ies] will, so long as we are not a party to the
proceeding in which the information is sought, reimburse us for our professional
time and expenses as well as the fees and expenses of our counsel, incurred in
responding to such requests.
We will retain copies of our audit reports, the related financial statements
and workpapers we create during this engagement for a period of [number
consistent with document retention policy] years [from the date we deliver to
you the reviewed financial statements and our review report, or other
provision consistent with the document retention policy]. If you terminate
your relationship with our firm, we will retain the review reports, compiled
financial statements and associated workpapers for a period of [number
consistent with document retention policy] years from the date of termination.
This engagement, and any engagement to audit financial statements for
subsequent periods, ends upon delivery of the financial statements. Any related
or follow-up services will be confirmed in a separate engagement letter. The
terms and conditions of that new engagement will be governed by a new,
specific engagement letter for that service.
While we do not expect there to be any problems whatsoever with our
relationship, misunderstandings can occur. We believe that most disagreements
can be resolved to mutual satisfaction in a friendly, non-threatening
environment. Accordingly, in the event of any dispute arising out of, or relating
to, this engagement, the parties will first attempt in good faith to settle the
dispute through non-binding mediation administered by the American
Arbitration Association under its mediation rules, before resorting to litigation.
In the event that the parties fail to settle the dispute through mediation, all
parties agree that any further action arising out of or relating to this engagement
shall be decided by a court of competent jurisdiction by a judge sitting without a
jury. WE BOTH ACKNOWLEDGE AND AGREE THAT WE ARE WAIVING
ANY AND ALL RIGHTS WE MAY HAVE TO HAVE SUCH DISPUTE
DECIDED BY A JURY [please check to see if this is permissible under local
state law].
Our liability relating to the performance of the services rendered under
this letter is limited solely to direct damage sustained by the Compan[y/ies]. In
no event shall we be liable for the consequential, special, incidental, or punitive
loss, damage or expense caused to the Compan[y/ies] or to any third party
(including without limitation, lost profits, opportunity costs, etc.).
Notwithstanding the foregoing, our maximum liability relating to services
rendered under this letter (regardless of form of action, whether in contract,
negligence or otherwise) shall be limited to the fees received by us for this
engagement. The provisions set forth in this paragraph shall survive the
completion of the engagement.
All claims relating to the performance of the services rendered under this
letter must be asserted within [3 years] of the delivery of the financial statements
or they will be stale and time-barred as a matter of law. This [3-year] limitation
period shall be tolled and extended during any period in which the parties are
engaged in mediation.
If any provision of this letter is unenforceable, the remaining provisions
shall be enforced to the maximum extent possible. If any provision of this letter
is overbroad or unreasonable, such provision shall be given effect to the
maximum extent possible by narrowing or removing that aspect of the provision
found overbroad or unreasonable, and enforcing the remaining portions to the
full extent reasonable.
For us to being the work, please sign a copy of this letter as indicated
below and return it to us along with the retainer amount (if applicable). If a
signed copy of this letter is not returned, we reserve the right to: (1) delay
commencement of any work or the allocation of any personnel or other resources
to your engagement, and/or (2) terminate the services contemplated in this letter.
We look forward to working with you and enjoying a mutually beneficial
relationship.
Very truly yours,
[Accounting Firm]
Agreed and acknowledged:
[Client Representative]
[Client Name]