AUDIT ENGAGEMENT LETTER

By | October 6, 2015
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(Last Updated On: October 6, 2015)

Date :

The Board of Directors,

Company Name

Address.

Dear Sirs,

Re.:   AUDIT ENGAGEMENT LETTER

  1. The purpose of this letter is to confirm our understanding of the terms of our appointment to audit the Balance Sheet of Company Name.(“the Company”) and the related Statement of Profit and Loss, Cash flow statement and notes thereon collectively referred to as financial statements for the year ended 31 March 2015, as required by the Companies Act, 2013 (“the Act’)  and Tax audit as per the Income Tax Act 1961 for the previous year ending 31 March 2015 and the nature of services we will perform for the Company in this period and in the future.  Further, this letter also sets out the respective areas of responsibility of the Company and ourselves.
  2. In relation to services above, this letter does not cover the auditor’s reporting responsibilities, corresponding responsibilities of management, and the relevant terms and conditions in relation to the auditor’s reporting on internal financial controls as required under section 143(3)(i) of the Act.
  3. Our audit will be conducted with the objective of  our expressing an opinion if the aforesaid financial statements give the information required by the Act in the manner so required, and give a true and fair view in conformity with the applicable accounting principles generally accepted in India, of the state of affairs of the Company as at 31st March, 2015  and its profit/loss and its cash flowsfor the year ended on that date and to comment on the matters specified in the Companies ( Auditor’s Report) Order,2015.

Audit Responsibilities and Limitations 

  1. In respect of the statutory audit, we have a responsibility to report by expressing an opinion on the financial statements of the Company.

We also have a professional responsibility to report if the financial statements do not comply in any material respect with the accounting standards prescribed in the new Companies Act, 2013 and Companies (Accounting Standards) Rules, 2006.

  1. We will conduct our audit in accordancewith generally accepted Standards on Auditing (SAs) issued by the Institute of Chartered Accountants of India (ICAI) and prescribed by the Central Government in accordance with Section 143(10) of the Act. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable, rather than absolute assurance that the financial statements are free of any material misstatements whether caused due to error or fraud.
  1. In conducting our audit, we will perform tests of the accounting records and such other procedures, as we consider necessary in the circumstances to provide a reasonable basis for our opinion on the financial statements.  We will examine, on a test basis, evidence supporting the account balances and disclosures in the financial statements.  We will also assess the accounting principles used and significant estimates made by the management, as well as evaluate the overall financial statement presentation. 
  1. In accordance with the provisions of section 143 (12) and 143 (13) of the Act we as auditor have responsibility on reporting, in course of performing of the duties, if we have reason to believe that an offence or fraud which is likely to materially affect the company is being or has been committed against the company by officers or employees of the company, to the Central Government, also it requires us to forward our report to the Board or Audit Committee, as the case may be, seeking their reply or observations, to enable us to forward the same to the Central Government. Such reporting will be made in good faith and, therefore, cannot be considered as breach of maintenance of client confidentiality requirements or be subject to any suit, prosecution or other legal proceeding since it is done in pursuance of the Act or of any rules or orders made there under. Further we have a responsibility to report on the adequate internal control systems in place and the effectiveness of such controls. 
  1. In order to complete our audit we will require a letter of representation from the Directors on matters relating to the accuracy and completeness of the financial statements. Additionally, we will require a written representation from the Directors confirming the assertions made by the Company during the course of audit, in connection with the Auditor’s Report.
  1. An audit is designed to obtain reasonable assurance about whether the financial statements are free of material misstatement.  However, having regard to the test nature of an audit, persuasive rather than conclusive nature of audit evidence together with inherent limitations of any accounting and internal control systems, there is an unavoidable risk that even some material misstatements of financial statements, resulting from fraud, and to a lesser extent error, if either exists, may remain undetected even though the audit is properly planned and performed by us in accordance with the Standards on Auditing and any matter reported to you under Section 143(12) of the Act read with Rule 13(1) of the Companies (Audit and Auditors) Rules, 2014 may not be an exhaustive or complete or accurate list of frauds that may exist in the Company.
  1. The responsibility for prevention and detection of fraud, irregularities and error rests with the Company’s management.  Your internal accounting control structure should provide you with reasonable assurance, though not absolute assurance, against the possibility of fraud, irregularities and errors.  It is not our statutory obligation or our responsibility under the generally accepted auditing standards to make an examination of internal controls beyond that which we make in determining the nature, extent and timing of our other audit procedures.  This consideration will not be sufficient to enable us to provide assurance on internal control or to identify all reportable conditions.
  1. In accordance with Standards on Auditing generally accepted in India, we will communicate certain mattersrelated to the conduct and results of the audit to those charged with governance or the Board of Directors of the Company. Such matters may include:

ü  significant findings from the audit and other matters, if any, arising from the audit that are, in our professional judgment, significant and relevant to those charged with governance or the Board of Directors of the Company regarding the oversight of the financial reporting process, including significant matters in connection with the Company’s related parties; and

ü  written representations requested from management and significant matters, if any, arising from the audit that were discussed, or the subject of correspondence, with management.

ü  significant audit adjustments and of reportable conditions noted during our audit procedures.

Management’s Responsibilities and Representations

  1. Our audit will be conducted on the basis that managementand where appropriate, the Board of Directors of the Company or those charged with governance, acknowledge and understand that they have responsibility:
  1.  For the preparation of financial statements that give a true and fair view in accordance with the applicable Financial Reporting Standards and other generally accepted accounting principles in India. This includes:

ü  responsibility for the preparation and fair presentation of financial statements on a going concern basis;

ü  responsibility for taking proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of the Act for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities ;

ü  responsibility for selection and consistent application of appropriate accounting policies, including implementation of applicable accounting standards along with proper explanation relating to any material departures from those accounting standards;

ü  responsibility for the identification of and for the Company’s compliance with laws and regulations applicable to its activities;

ü  responsibility for making judgments & estimates that are reasonable and prudent so as to give a true and fair view of the state of affairs of the company at the end of the financial year and of the profit or loss of the entity for that year ;

ü  responsibility for complying with the applicable provisions of the Act ;

ü  Laying down internal financial controls to be followed by the Company and to ensure that such internal financial controls are adequate and are operating effectively;

ü  Devising proper systems to ensure compliance with the provisions of all applicable laws and that such system are adequate and operating effectively and ensures the prevention and detection of fraud, error, and other irregularities. It is also responsible for informing us about any fraud detected and remedied by the Management, any incidence of fraud reported through the vigil mechanism or through any other internal or external sources. Management is also responsible to take appropriate action when a fraud is detected or reported through any of the sources

ü  The management is also responsible for making available to us, as and when required, all the accounting records and all other records and related information, including minutes of all Directors’ meetings and providing us all explanations that we may require from time to time to the best of its knowledge and belief, which are necessary for the purposes of our audit. 

  1. Identifying and informing us of financial transactions or matters that may have any adverse effect on the functioning of the Company.
  2. For the preparation of Form No. 3CD in accordance with the Income Tax Act,1961.
  3. To provide us , inter alia, with:

ü  Unrestricted access, at all times, to all information, including the books, accounts, vouchers and other records and documentation of the Company, whether kept at the Head Office or elsewhere, of which the Management is aware that are relevant to the preparation of the financial statements such as records, documentation and other matters. This will include books of account maintained in electronic mode;

ü  Additional information that we may request from the management for the purpose of our audit;

ü  Unrestricted access to persons within the Company from whom we deem it necessary to obtain audit evidence. This includes our entitlement to require from the officers of the company such information and explanations as we may think necessary for the performance of our duties as the auditors of the Company ;

ü  Unrestricted access, at all times, to the records of all the subsidiaries (including associate companies and joint ventures as per explanation to Section 129(3) of the Act) of the company in so far as it relates to the consolidation of its financial statements, as envisaged in the Act.

  1. Identifying and informing us of :

ü  All the pending litigations and confirming that the impact of the pending litigations on the Company’s financial position has been disclosed in its financial statements;

ü  All material foreseeable losses, if any, on long term contracts including derivative contracts and the accrual for such losses as required under any law or accounting standards; and

ü  Any delay in transferring amounts, required to be transferred, to the Investor Education and Protection Fund by the Company.

  1. Identifying and informing us as to whether any director is disqualified as on                           March 31, 2015 from being appointed as a director in terms of Section 164 (2) of the Act. This should be supported by written representations received from the directors as on March 31, 2015 and taken on record by the Board of Directors.
  2. Informing us of facts that may affect the financial statements, of which Management may become aware during the period from the date of our report to the date the financial statements are issued.
  1. As required by auditing standards generally accepted in India, we will make specific   inquiries of management about the representationscontained in the financial statements and other reports as may be applicable and the effectiveness of internal control over financial reporting. Auditing standards generally accepted in India also require that, at the conclusion of the audit, we obtain representation letters from certain members of management about these matters. The responses to those inquiries, the written representations, and the results of our audit tests comprise the evidential matter we will rely upon in forming an opinion on the financial statements or other reports. Because of the importance of managements’ representations to an effective audit and review, the Company agrees to release Bansal Agarwal & Co. and its personnel from any liability and costs relating to our services under this letter attributable to any misrepresentations by management. Management is responsible for providing us unrestricted access to whatever data, documents and other information requested in connection with audit on a timely basis, and shall provide with all the additional information that we may request from them for the purposes of our audit. They shall provide all the required support to discharge our duties as the statutory auditors as stipulated under the Act / ICAI Standards on auditing and applicable guidance and its failure to do so may cause us to delay our report, modify our procedures, or even terminate our engagement.
  2. If you intend to publish or otherwise reproduce the financial statements or other reports together with our report (or otherwise make reference to our firm) in a document that contains other information, you agree to provide us with a draft copy of the entire document that is to be printed, prior to such printing (commercially, “printer’s proof”) in order for us to determine that the financial statements and our report thereon are appropriately included in such document. The management of the Company responsible for such document and our responsibility is restricted only to the documents that have been issued under our name. In case such document is not provided to us, the management of the Company will be responsible for such document and we won’t accept any responsibility for that document.
  1. Management acknowledges their responsibility to provide us access to reports relating to internal reporting on frauds (e.g., vigil mechanism reports, etc.), including those submitted by cost auditor or company secretary in practice to the extent it relates to their reporting on frauds in accordance with the requirements of Section 143(12) of the Act. We shall have unrestricted access to whatever records, documentation and other information requested in connection with the engagements.
  2. Notwithstanding anything contained anywhere in this agreement, you agree that we may, from time to time, engage or use the services of any expert(s) or require to obtain their opinion, on any matter which we, in our reasonable understanding and/or professional judgment, determine to be essential for the purposes of rendering the Services described herein and to the extent the same is required and/or permitted by auditing standards generally accepted in India. Further, in this respect, you understand and permit us to share any or all relevant documents and working papers or other information obtained by us (during the course and for the purpose of our Services herein) from you (or on your behalf) with such expert(s), their partners or employees etc, to the extent we believe is required for the purposes of availing their services as stated above.
  1. The working papers prepared in conjunction with our audits are the property of our Firm, constitute confidential information and will be retained by us in accordance with our Firm’s policies and procedures. However we hereby acknowledge that the details or data received from you for preparation of these working papers are confidential information of the Company and will not be disclosed by us to any third party, except as set out in paragraph 18 below or when required by legislation, without the prior written consent from the Company.
  2. In accordance with the Statement on Peer Review issued by the Institute of Chartered Accountants of India or as may be required or mandated by any other competent regulator, our services covered by this letter may be subject to a review to be conducted by an independent reviewer who can inspect, examine or take abstract of our work papers including those provided by you.
  1. Our report prepared in accordance with relevant provisions of the Act would be addressed to the shareholders of the Company for adoption of the accounts at the Annual General Meeting. In respect of other services, our report would be addressed to the Board of Directors. The form and content of our report may need to be amended in the light of our audit findings.
  2. Fees :

ü  Our fees will be based on the degree of skill involved, the seniority of the staff engaged and the time necessarily occupied on the work.  Our fee for conducting the Statutory Audit and Tax audit will be mutually agreed with the Management and the out of pocket expenses will be at actuals.

ü  Our fee does not include service tax on professional services rendered. This will be recovered on actual basis.

ü  Services not mentioned above is not covered in the proposal above. Any incidental services apart from the one mentioned in the proposal will be discussed with the Company’s Management. A separate fee quote will be made at that point of time.

ü  Our invoices are payable on demand in full upon presentation.

ü  In the event we are requested or authorised by the Company or are required by government regulation, or other legal process to produce our documents or our personnel as witnesses with respect to our engagements for the Company, the Company will reimburse us for our professional time and expenses, as well as the fees and expenses of our counsel, incurred in responding to such requests.

  1. Limitation of Liability

ü  We will use reasonable skill and care in rendering the services set out in this engagement letter.

ü  The Company expressly understands and agrees that we shall not be liable to the Company for any direct, indirect, incidental, special, consequential or exemplary damages including but not limited to damages for loss of profits, goodwill etc. arising as a result of our services provided to the Company under this engagement, except liability arising as a direct result of gross negligence solely attributable to us in respect of services provided under this engagement but such liability shall in no circumstances exceed the sum equivalent to the Fee paid to us for this engagement in respect of such services.

  1. Use of firm’s name

In connection with literature of an advertising nature, our firm’s name is not to be quoted without our prior written permission.

  1. Confidentiality of information
  2. a)We understand the confidential nature of the engagement and will hold in strict confidence all information obtained from you.  Subject to paragraph 18 & 23 (b) & (c) below, we will not disclose such information to others or use such information except in connection with the performance of the services agreed in this proposal.
  3. b)This clause shall not prohibit our disclosure of Confidential Information where we are required by law or a competent regulatory authority to disclose or where we wish to disclose it to our professional indemnity insurers or advisers, in which event we may do so in confidence only.
  4. c)We may disclose in our external communication the fact that we have rendered services to your company by identifying the name of your company, reproducing your logo and/or indicating only the general nature of services rendered by us including such details as have properly entered the public domain.
  5. Other matters

ü  We may communicate with you by electronic mail on the basis that in consenting to this method of communication you accept the inherent risks (including the security risks of interception of or unauthorised access to such communications, the risks of corruption of such communications and the risks of viruses or other harmful devices) and that you shall perform virus checks.

ü  We may be required to connect the firm’s computers to your network during this engagement.  You hereby provide your consent to this.  While the firm takes reasonable steps to protect its computers using system hardening and anti-virus utilities, we are not responsible for any damage it may inadvertently cause to your computer and networks.

ü  Any additional services or any work for advisory services that you may request, and that we agree to provide, will be the subject of separate written arrangements.

ü  Should conditions not now anticipated preclude us from completing our audit and issuing a report as contemplated, we will advise you promptly and take such action as we deem appropriate.

ü  If any portion of this letter is held to be void, invalid, or otherwise unenforceable, in whole or part, the remaining portions of this letter shall remain in effect.

ü  Once we have issued our report, we have no further direct responsibility in relation to the financial statements for that financial year. However, we expect that the directors will inform us of any material event thereafter, which have an effect on the financial statements

ü  In addition to our report on the financial statements, we expect to provide you with a separate letter concerning any material weaknesses in accounting and internal control systems which might come to our notice.

ü  Neither you nor we shall be liable for breach of this Agreement (other than payment obligation) caused by circumstances beyond your or our reasonable control

 Governing Law and Jurisdiction

The engagement covered by this letter shall be subject to and governed by Indian law and all disputes arising from or under this letter shall be subject to the exclusive jurisdiction of the Indian courts.

  1. Agreement of terms

Once it has been agreed, this letter will remain effective until it is replaced. Please sign and return the duplicate copy of this letter to indicate your acknowledgement of, and agreement with, the arrangements for our audit of the financial statements including our respective responsibilities.

Pursuant to our agreement as reflected in this letter, we will audit and report on the financial statements and tax audit and other reports of the Company for each of its subsequent fiscal years until either the Company or we terminate this agreement.

We look forward to full cooperation with your staff and we trust that they will make available to us whatever records; documentation and other information that are requested in connection with our audit.

If you have any cause for complaint in relation to the services or our staff, you are invited, in the first instance, to report your concerns in confidence to the Engagement Partner.

We appreciate the opportunity to be of service to you.

Yours faithfully

For CA. Firm Name.               Accepted for and on behalf of the Board of Directors of

Chartered Accountants                              Company name.

ICAI Firm Regn. No.: …….

( …………………………)                                _____________________________

              Partner                                           (Name of the Director)

Membership No. ……                                                Director

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