Why Engagement Letters Matter
and Why We Issue One Every Year…
One comment I hear increasingly from new clients is:
“We’ve never received an engagement letter before.”
That statement always surprises me — because for audit and review engagements, an engagement letter is not optional, and they must be done every year.
This isn’t about formality or paperwork for its own sake. Engagement letters exist for one reason: clarity. They protect the client, the committee, and the accountant by ensuring everyone understands exactly what has been agreed.
And importantly, this isn’t just my view.
What the Quality Reviews Are Telling Us
Chartered Accountants Australia and New Zealand regularly publishes the results of its Quality Assurance (QA) reviews across Australian firms.
One of the most common findings, year after year, is this:
“No engagement letter, or an engagement letter that does not include all required information.”
In other words, even among professional firms, failure to properly agree and document the terms of an engagement is a known compliance weakness.
That alone tells us how critical engagement letters really are.
What an Engagement Letter Actually Does
An engagement letter is not just a signature exercise. It formally documents:
What service is being performed (audit, review, or other assurance)
What period is covered
Who is responsible for what
What standards apply
What is not included
The agreed fee and timing
Independence and ethical safeguards
Without this, assumptions creep in — and assumptions are where disputes start.
Why It Must Be Issued Every Year
A very common misconception is:
“We signed one years ago — doesn’t that still apply?”
No.
Each year is a separate engagement, even if:
The organisation is the same
The accounting records look similar
The auditor hasn’t changed
Why?
Because things change:
Committee members change
Financial size and risk change
Reporting requirements change
Independence considerations change
Professional standards require that the terms be agreed and confirmed for each engagement period.
That is why I issue a new engagement letter every year — without exception.
Why “We Never Got One” Is a Red Flag (Not a Criticism)
When a new client tells me they’ve never seen an engagement letter, it usually means one of three things:
It was issued but never properly explained, or
It was signed years ago and forgotten, or
It genuinely was never issued
None of those situations serve the committee well.
An engagement letter is often the only document that clearly explains:
Why certain documents are requested
Why certain work can’t be done
Why independence limits what assistance an auditor can provide
Why additional work may require a separate engagement
Without it, frustration builds on both sides.
Engagement Letters Protect Committees
For volunteer committees in particular, an engagement letter provides something very important:
A written record of what you agreed to — and what you didn’t.
If questions arise later (from members, regulators, or funders), the engagement letter shows:
The scope was appropriate
The responsibilities were properly allocated
The auditor did not assume management’s role
That protection matters.
Why We Don’t Start Work Without One
From a professional and ethical standpoint, starting work without a signed engagement letter creates risk for everyone involved.
That’s why my position is simple and consistent:
No signed engagement letter, no commencement of work.
Not because it’s bureaucratic — but because it’s the foundation of a proper, independent assurance engagement.
The Bottom Line
Engagement letters are not about control.
They’re about clarity, protection, and professionalism.
The fact that engagement letters continue to appear as a top quality issue in Chartered Accountants’ QA reviews tells us this is not a minor administrative detail — it is a core requirement of good practice.
If you’ve never seen one before, or don’t remember signing one recently, that’s not a criticism — but it is a conversation worth having.
