Why are engagement letters especially necessary for non-statutory audits?

Engagement letters for non-statutory audits play a crucial role, particularly in outlining variations in work scope. Non-statutory audits do not have a defined legal framework governing them like statutory audits do, which makes clarity around the scope of work performed even more important.

These letters serve as a formal agreement between the auditor and the client, specifying the nature and extent of the audit work to be undertaken. By clearly defining what is included and what is excluded from the audit, both parties can have aligned expectations, which helps prevent misunderstandings or disputes later on. This is vital in non-statutory scenarios where there might be ambiguity about the services to be provided.

While detailing audit costs, confirming auditor qualifications, or simplifying the audit processes may also be aspects mentioned in engagement letters, the primary focus for non-statutory audits is ensuring that both the auditor and the client have a mutual understanding of what is to be examined or reported on. This clarity around scope is essential for establishing the agreement's parameters and ensuring that the audit meets the expectations of all stakeholders involved.