Audit engagement definition
/What is an Audit Engagement?
An audit engagement is an arrangement that an auditor has with a client to perform an audit of the client's accounting records and financial statements. The term usually applies to the contractual arrangement between the two parties, rather than the full set of auditing tasks that the auditor will perform. To create an engagement, the two parties meet to discuss the services needed by the client. The parties then agree on the services to be provided, along with a price and the period during which the audit will be conducted. This information is stated in an engagement letter, which is prepared by the auditor and sent to the client. If the client agrees with the terms of the letter, a person authorized to do so signs the letter and returns a copy to the auditor. By doing so, the parties indicate that an audit engagement has been initiated. This letter is useful for setting the expectations of both parties to the arrangement.
The term may also indicate all of the work performed by an auditor for a client under the terms of an engagement letter. In this case, an audit engagement spans the full range of audit procedures that may be used, including the examination of the client's financial statements and the preparation of an audit report. The work will also include an assessment of the client’s system of internal controls, which is needed to determine the nature and amount of the audit work to be conducted.
Related AccountingTools Courses
How to Conduct a Compilation Engagement
The Difference Between an Audit Engagement and a Review Engagement
An audit engagement involves the most detailed level of review of a client’s financial records and financial statements, while a review engagement is less detailed and is only intended to yield a moderate level of assurance that a client’s financial statements are free of material misstatements. This results in the following differences:
Cost. An audit engagement is usually substantially more expensive than a review engagement.
Duration. It takes longer to complete an audit engagement than it does to complete a review engagement.
Stakeholder expectations. Many stakeholders, such as investors and lenders, insist on receiving fully-audited financial statements each year, which means that the issuer must complete an audit engagement. If there is a lower level of expectation regarding the rigor with which the financial statements were produced, then a review engagement may be acceptable instead.
Related Articles
Management Assertions in Auditing
The Difference Between an Audit, a Review, and a Compilation