As you are aware, at the last annual general meeting of the shareholders of XYZ Industries, this firm was appointed to audit the financial statements of the company for the year ended September 30, 20x8. This letter explains our understanding of the scope and objectives of the audit engagement as well as the method of determination of our fees. We would appreciate your acknowledgement that this is also the understanding of the Board of Directors.
We will conduct the audit in accordance with [insert the relevant statutory, professional and/or other auditing requirements]. The objective of our audit is to form an opinion as to whether the financial statements are, in all material respects, presented fairly and in accordance with [insert the relevant statutory, professional and/or other financial reporting framework] and to communicate this opinion to your shareholders.
Please note that the purpose of the audit is not to detect instances of fraud or to report on the adequacy of the company's accounting information system and related control procedures. Neither is the purpose of the audit to provide a warning as to the likelihood of business failure. However, if, during the course of our audit, we become aware of any fraud or significant weaknesses in either the information or operating systems of the company, we will notify you accordingly.
Please also note that we are not responsible for the preparation of the financial statements. If we were to be responsible for their preparation, we would not be able to provide an independent opinion on their presentation. The responsibility for the preparation of the financial statements rests with the management of the company. In fact, prior to issuing our audit opinion, we will be requesting the Board of Directors to approve the financial statements. In this regard, the financial statements comprise the balance sheet as at September 30, 20x8, the statement of income and expenditure for that year and the explanatory notes attached to those accounting statements [insert additional statements where appropriate].
In forming our opinion, we will not examine all transactions relating to the financial statements. To do so would be prohibitively costly. Instead, and in accordance with appropriate auditing standards, we will form our opinion based on both an examination of a selection of representative transactions and an evaluation of accounting policies and information derived therefrom. As a result, and bearing in mind other limitations (of the audit, internal control procedures and accounting information generally), our audit will provide less than absolute assurance that the financial statements are free of material misstatement.
We recognize that the company's officers and employees are generally fully occupied attending to their own duties. However, in order for us to conduct our audit effectively, we will need to make inquiries to, and receive representations from, some of the company's officers and employees as well as a number of third parties with whom XYZ Industries has dealings. We intend to carry out this work with as little disruption as is possible. In addition, we will require access to any records, accounting or otherwise, that we consider may be relevant to the formation of our opinion on the financial statements.
Our fee for the audit will be based on the actual time spent by this firm (in planning the audit, and in gathering and evaluating the necessary evidence we need to form an opinion on the financial statements), plus out-of-pocket costs. We attach a schedule setting out the total estimated fee and the dates each installment is payable. This estimate is based on our audit staff not encountering any unforeseen problems. If we become aware of any unforeseen problems or other matters that could alter this estimate, we will immediately notify you to explain the situation and hopefully resolve any problems.
We trust this letter clearly sets out the scope and objectives of our audit of the company's financial statements for the year ended September 30, 20x8, as well as the method of determination of our fees. Unless we notify you otherwise, these matters or arrangements will also apply to future audit engagements.
Please sign and return the attached copy of this letter to acknowledge that the letter properly sets out the Board's understanding.
Sincerely,
(signed) Peta Fabiano,
Partner,
Price Marwick & Co
Copy: Chairman of Audit Committee.
[Attachment: Schedule of estimated audit fees payable]
I acknowledge that this letter sets out the Board's understanding of the scope and objectives of the audit engagement, as well as the method of determination of the annual audit fees.
.................................{signature)
..................(date)
Chairman of Directors
XYZ Industries.