Audit Engagement Letters Template for Canada
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What is a Audit Engagement Letters?
An audit engagement letter is a written agreement that sets out the terms on which an auditor will conduct an audit for a client. In Canada, CPA Canada's Canadian Auditing Standard CAS 210 requires the letter to be agreed in writing before each engagement commences. It defines the scope of the audit, the responsibilities of both parties, the applicable reporting framework, and fee arrangements. Federally incorporated companies must appoint an auditor under the Canada Business Corporations Act, making the engagement letter a foundational document in the audit process.
Frequently Asked Questions
What is an audit engagement letter in Canada?
An audit engagement letter is a written contract between an auditor and a client organisation confirming the scope, objectives, and terms of an audit. Under Canadian Auditing Standard CAS 210, auditors are required to agree the terms of every new audit engagement in writing before beginning their work.
Is an audit engagement letter legally required in Canada?
CAS 210, issued by CPA Canada, makes a written engagement letter a professional requirement for every statutory audit. While the letter itself is not prescribed by statute, auditors who fail to document engagement terms risk professional discipline and face greater liability exposure if disputes arise.
What must an audit engagement letter cover?
CAS 210 requires the letter to state the objective and scope of the audit, the auditor's responsibilities, management's responsibilities for the financial statements, identification of the applicable financial reporting framework, the expected form of any reports, and fee arrangements.
Who signs the audit engagement letter in a Canadian company?
Management or those charged with governance typically sign on behalf of the client. For public companies, this is usually the audit committee or board. The lead audit partner signs on behalf of the audit firm. Both parties must sign before the audit commences.
Does a new engagement letter need to be issued every year?
Not necessarily. Where the terms are unchanged from the prior year, CAS 210 allows the existing letter to remain in force. However, a new letter is required when there is a change in senior management, a change in ownership, a significant change in the business, or a change in the audit scope or fees.
How does an audit engagement letter differ from a review engagement letter?
An audit provides a higher level of assurance and follows Canadian Auditing Standards. A review engagement follows Canadian Standard on Review Engagements (CSRE 2400) and provides limited assurance. The engagement letter clearly states which type of engagement has been agreed so that users understand the level of assurance provided.
Can a client limit the scope of an audit through the engagement letter?
A client may request certain limitations, but the auditor must assess whether a scope limitation prevents them from forming an audit opinion. If limitations are too severe, the auditor must either withdraw or issue a qualified opinion. CAS 210 prohibits the auditor from agreeing to terms that conflict with their professional obligations.
Are audit engagement letters public documents in Canada?
No. Engagement letters are confidential contracts between the auditor and the client. However, in litigation or regulatory investigations, letters may be disclosed as evidence of the agreed scope of work. Public companies must disclose audit fees in their management information circulars, but the engagement letter itself is not filed publicly.
About the Audit Engagement Letters
An Audit Engagement Letter is a formal contract between an audit firm and client that establishes the terms, scope, and responsibilities for an audit engagement under United States law. This document serves as legal protection for both parties and ensures compliance with federal and state auditing standards before any audit work begins.
When do you need this document?
You need an Audit Engagement Letter before starting any professional audit engagement in the United States. This includes annual financial statement audits for public companies subject to SEC requirements, private company audits requested by lenders or investors, non-profit organization audits required by grant agreements, and specialized audits such as employee benefit plan audits under ERISA. The letter is also required when audit scope changes significantly, when there are changes in audit firm personnel, or when regulatory requirements are updated. Without a properly executed engagement letter, audit firms cannot begin their work and may face professional liability issues.
Key legal considerations
Your Audit Engagement Letter must clearly define the audit objectives, scope limitations, and management responsibilities to avoid misunderstandings and legal disputes. The document should specify which financial reporting framework applies (GAAP, IFRS, or other), outline the auditor's responsibility for detecting fraud and illegal acts, and clarify that an audit provides reasonable but not absolute assurance. You must include provisions regarding auditor independence requirements, confidentiality obligations, and limitations on the auditor's liability. The letter should address communication protocols with audit committees, management letter procedures, and requirements for subsequent events review. Fee arrangements, billing terms, and engagement timeline must be clearly stated to prevent disputes.
Legal requirements in United States
Under United States law, your Audit Engagement Letter must comply with multiple regulatory frameworks depending on your company type and size. Public companies must ensure their engagement letters address Sarbanes-Oxley Act requirements, including auditor independence rules, prohibited non-audit services, and mandatory audit committee communications. The letter must incorporate AICPA Professional Standards AU-C Section 210 requirements for engagement terms and PCAOB Auditing Standard 1301 for public company audit communications. Private companies must still comply with AICPA standards and relevant state CPA licensing requirements. The engagement letter should reference applicable Securities Exchange Act provisions for public companies and specify compliance with state-specific professional requirements where the audit firm is licensed. You must ensure the letter addresses current regulatory guidance and industry-specific requirements that may apply to your business sector.
GOVERNING LAW
Applicable law
This Audit Engagement Letters is drafted to comply with Canada law. Key legislation includes:
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