April 8, 2004

Auditor Engagement and Request Letters

At the ABA Spring Meeting, one hot topic was the growing struggle between counsel and auditors over audit request letters. Recent issues of The Corporate Counsel have analyzed the latest issues arising in this area – and upcoming issues will continue to address these issues as they evolve.

Along these lines, I have received a lot of emails from members rife with horror stories related to auditor request letters – as well as some success stories in pushing back. Please share your stories with me and then I will try to post a comprehensive (and anonymous) analysis of what appears to be happening in the industry.

Here is an example of a recent horror anecdote I received from a member: “Our company just received an audit request letter with the following language: Please confirm that all information brought to your attention indicating the occurrence of a possible illegal act committed by the Company, or any of its agents or employees, has been reported to [the Auditing Firm] and to the Company’s Audit Committee.”

By the way, the new edition of the “AICPA Audit and Accounting Manual” suggests the following key ingredients for engagement letters:

– Identification of the client
– Records retention policy
– Description of the services to be provided
– Responses to subpoenas and outside inquiries
– Staffing of the engagement
– Explanation of how fees and costs will be billed
– Description of client responsibilities
– Payment terms
– Designation of client contacts
– Consequences of non-payment
– Timing of the work
– Alternative dispute resolution
– Consequences of extending completion deadlines
– Withdrawal and termination
– Requests for additional services
– Client signature
– Client communications required by the AICPA
– Provisions to resolve potential ethical conflicts
– Any matter or terms unique to an engagement that are agreed upon in advance of rendering services