Question

What is a letter of commitment (Engagement Letter) what are its parts and what is it used for?

Answer 1

An Engagement Letter is a written agreement to perform services in exchange for compensation. Engagement Letter is used by certain professional service firms, particularly in the field of finance, accountancy , law and consulting, to define specific of the business relationship.

An Engagement Letter defines the legal relationship betweeen a profession firm (eg. law, investment banking, consulting or accountancy firm) and it's clients.

Purpose- An Engagement Letter are used in a variety of professional situations. An Engagement letter is the contract between the client and the Accountant that defines terms and conditions, scope of work (eg. returns to be prepared) and the responsibilities and obligations of each of the respective parties and provides guidance regarding any liabilities that will or will not be accepted by each involved party.

Parts-

The following basic contents of audit engagement letter:-

1. The names of both parties;

2. The objectives of the engagement;

3. The scope of the audit;

4. The accounting responsibility and audit responsibility;

5. The duties of both parties;

6. The audit fees;

7.The period for which the audit engagement letter is valid;

8. The responsibility arising from a voilation of the terms of audit engagement letter;

9. The date of signing the audit engagement letter;