2. APPOINTMENT LETTER
Official written intimation by the
management to the auditor informing of his
appointment as an auditor
Should be issued
within 60 days of incorporation when the first
auditors are appointed or
when a casual vacancy filled or
when appointment is made by shareholders in
AGM or
Where SECP appoint (due to non-compliance)
3. ENGAGEMENT LETTER
Letter sent by an auditor to his client, after
his appiontment
Spelling out the extent of his
responsibilities
Confirming the acceptence of appointment
Objective and scope of audit
The extent of responsibilities
Form of reports made to the client
5. CONTENTS (Additional)
Arrangement regarding planning of audit
Confirm the terms of letter by issuing
acknowledging reciepts
Form of report
Involvement of other auditors and experts
Involvement of internal auditor and staff
Any resteriction of the auditor’s liability
Any further agreements between them
6. Items Included in
Engagement Letters
Name of the entity
Management responsibilities
Financial statements
Establishing effective internal control over financial reporting
Compliance with laws and regulations
Making records available to the auditors
Providing written representations at end of the audit, including
that adjustments discovered by the auditors and not recorded
to the financials are not material
Auditor responsibilities
Conducting an audit in accordance with GAAS
Obtaining an understanding of internal control to plan audit
and to determine the nature, timing and extent of procedures
Making communications required by GAAS
7. Engagement Letters
Optional Items
Arrangements regarding
Conduct of the audit (e.g., timing, client assistance)
Use of specialists or internal auditors
Obtaining information from predecessor auditors
Fees and billing
Other services to be provided, such as examination of
internal control over financial reporting
Limitation of or other arrangements regarding
liability of auditors or client
Conditions under which access to the auditors’
working papers may be granted to others
8. OBJECTIVES
Clearly define the extent of auditors responsibilities
Minimise the possibility of misunderstanding
Confirmation of auditors acceptence
Client aware of the statutory responsibilities of the
mangement
Client aware of the statutory requirements of Companies
Ordinance
Briefed that discovery of Fraud is not the aim of audit
Scope of additional work is determined.
Audit test would be based on results of internal control
9. TO WHOM SENT
To all new clients soon after appointment as auditor
To existing clients, to whom no such letter yet to be
sent
If there is any change in scope and nature of
assignment occurs (job specification, management,
size and line of business, processing method)
Separate engagement letter to subsidiaries (if auditors
are same)
In case of joint auditors (to other audit firms)
10. Big 8 (until 1987)
The firms were called the Big 8 for most of the 20th century,
reflecting the international dominance of the eight largest
accountancy firms:
1.Arthur Andersen
2.Arthur Young & Co.
3.Coopers & Lybrand
4.Ernst & Whinney (until 1979 Ernst & Ernst in the US and
Whinney Murray in the UK)
5.Deloitte Haskins & Sells (until 1978 Haskins & Sells in the US and
Deloitte Plender Griffiths in the UK)
6.Peat Marwick Mitchell, later Peat Marwick, then KPMG
7.Price Waterhouse
8.Touche Ross
11. Firm Employees Fiscal Year Headquarters
PricewaterhouseCoopers 163,000 2010 United Kingdom
Deloitte Touche Tohmatsu 169,000 2010 United States
Ernst & Young 144,441 2010 United Kingdom
KPMG 135,000 2010 The Netherlands
Big 5 (until 2002) now Big 4
The Big Five became the Big Four after the near-demise of
Arthur Andersen in 2002, following its involvement in the
Enron scandal