This document discusses appointment letters and engagement letters between auditors and their clients. An appointment letter is issued by management to formally appoint an auditor, while an engagement letter is sent by the auditor to the client to define responsibilities, scope of work, and other terms. Engagement letters typically specify management and auditor responsibilities, financial statements to be audited, compliance with laws, access to records, representations to be provided, nature and timing of the audit, fees, and limitations of liability. Engagement letters are sent to new and existing clients to clarify terms, and if the audit scope changes. They help minimize misunderstandings between the auditor and client.

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

4. CONTENTS
Auditor’s Responsibility
Mangement’s Responsibility
Scope of an Audit
Management’s Representation
Irregularities and Fraud
Other Services
Fees
Clients Confirmation

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