Many participants in my seminars over the years have shared that obtaining engagement letters are often treated as a compliance function. The professional standards require us to get one so we update a form in our Word file and mail it to the individual responsible for engaging us to audit. As an alternative, the in-charge accountant may include the engagement letter with the stack of confirmation forms for the CFO or other client executive to sign on the first day of field work.
Rarely do engagement teams take advantage of the opportunities to gather information and perform highly-effective auditing procedures when engagement letters are personally delivered for signing. Some CPA firms, in recent months, are requiring engagement partners or managers to personally deliver the engagement letter to the top client authority. Here are some of the discussion topics at that meeting:
• Establish an understanding of services to be provided
• Make fraud inquiries
• Discuss client’s responsibilities, including oversight of non-attest services
• Arrange for proper workspace
• Arrange for client assistance
• Discuss the effects of economic recession on the client’s business and, if necessary, management’s plans for overcoming negative effects
• Discuss other operational or accounting problems or issues
Because of the instability of the global economy, and because of the effects of the economic downturn in the United States, the importance of effective audit planning can’t be over emphasized. An engagement partner or manager is the pinnacle of a CPA firm’s system of quality control. Delivering the engagement letter integrates the executive’s expertise and experience early in the planning phase to enable the design of the most cost-beneficial audit strategies, particularly on small audits. Post a comment and share the benefits and pitfalls of your firm’s engagement letter practices.