What an audit engagement letter must cover
What an audit engagement letter must agree under ISA 210, why a partner reviews it before it goes out, and what happens in Achekam once it is signed.
By Achekam · · 4 min read · For Accountants & audit firms in South Africa, Nigeria, Kenya
Most disputes between auditors and their clients start with a misunderstanding about what was agreed. The client thought the audit would find the fraud. The client thought the firm would prepare the financial statements as well. The client thought the report would be ready for the bank by the end of the month. Each of those expectations could have been addressed in one paragraph of the engagement letter, and none was.
ISA 210 exists to stop that. Before an audit starts, the auditor and management must agree the terms, in writing, and the auditor must establish that the conditions for an audit are present. This article sets out what the letter must cover, why a partner should read it before it goes out, and what Achekam does from proposal to signature.
Preconditions for an audit
Before agreeing to audit, the auditor must establish two things.
An acceptable financial reporting framework. Management must be preparing the financial statements under a framework that is acceptable for the entity and the purpose, such as IFRS or IFRS for SMEs. If there is no acceptable framework, there is nothing to audit against.
Management's agreement to its responsibilities. Management must acknowledge and understand that it is responsible for:
- preparing the financial statements in accordance with the framework;
- the internal control it determines is necessary to prepare statements free from material misstatement, whether due to fraud or error;
- giving the auditor access to all relevant information, additional information the auditor requests, and unrestricted access to people within the entity.
If management will not accept those responsibilities, the auditor should not accept the engagement. These are not formalities; they are the foundation on which the auditor's report rests.
What the terms must include
The agreed terms, normally set out in an engagement letter, should include:
- The objective and scope of the audit. What is being audited, for which period, and why.
- The auditor's responsibilities. To obtain reasonable assurance and report, in accordance with the auditing standards.
- Management's responsibilities, as above, in plain words.
- The applicable financial reporting framework.
- The expected form and content of reports, with a statement that the report may differ from that expected in some circumstances, for example if the auditor modifies the opinion.
The letter should also explain the inherent limitations of an audit: even a properly planned and performed audit carries an unavoidable risk that some material misstatements will not be detected. That sentence is the answer, agreed in advance, to the client who later asks why the audit did not find something.
Many firms add practical matters: timetable, fees and billing, the involvement of other auditors or experts, any non-audit services and how independence is protected, limitation of liability where the law allows it, and arrangements for the client's own staff. The full text of ISA 210 is in the IAASB's 2026 Handbook of international pronouncements, which collects the quality management standards and all the International Standards on Auditing.
Partner review before sending
An engagement letter commits the firm. A partner should read it before it goes out, and in Achekam, for audits and reviews, that is enforced.
AI can draft an engagement letter's clauses, never fees, and a person saves the draft. Achekam will not send a letter whose wording breaks the professional guardrails, and for audits and reviews, will not send one before a partner has reviewed it.
What the partner is checking for:
- that the preconditions above have been established, not assumed;
- that the scope matches what the firm has agreed to do, and nothing more;
- that management's responsibilities are stated clearly enough to rely on later;
- that any AI-drafted clause says what the firm means, in the firm's voice;
- that fees and timetable are realistic.
The guardrails Achekam applies to the wording are covered in engagement letter guardrails.
From proposal to signature
In Achekam, the letter usually follows a proposal. A client opens the proposal from a link and can accept or decline it. Acceptance is recorded with the client's name and the time. It is not an electronic signature; it raises the engagement letter for the client to sign. Letters are tracked under CRM & SALES > Engagement Letters / Contracts, and can also be recorded as signed on paper. From proposals to engagement letters walks through that flow.
For electronic signature, staff prepare the letter, add signers, approvers and copied recipients in order, and the client signs from an e-mailed link without an Achekam account. Who signs for the client matters: the person signing must have authority to agree the terms on behalf of management, and, where appropriate, those charged with governance.
What happens once it is signed
When an engagement letter is signed, Achekam turns the lead into a client, activates a service for each mapped quotation line, and drafts, but does not issue, the invoice. Recurring lines go on a schedule; a service that is not mapped is recorded as unmapped.
Two practical points follow. Someone in the firm must review and issue the drafted invoice; nothing goes to the client automatically. And no screen shows what a signed contract created or lets staff retry a failed step, so check that the client and services appear as expected after signing.
The engagement itself is then created with its type, such as statutory audit, chosen by staff. If the firm uses its own named engagement types, pick the one that matches the letter.
For recurring audits, ISA 210 also asks the auditor to consider whether the terms need revising each year. Diarise that check: a change in management, ownership, framework or the client's circumstances is a reason to send a new letter rather than rely on the old one.
Take the engagement letter template your firm uses most, and check it against the five required terms and the inherent-limitations paragraph before the next audit season begins.
General guidance only, not advice on your own circumstances. Tax and payroll rules change: check the current position with the authority or your adviser.
