Engagement letters for a CA firm: what SA 210 requires for audits, and a one-page letter for tax and GST work

Most fee disputes and missed deadlines at a small CA firm start the same way: the client thought something was included that the firm did not, or did not know a document was due until it was late. An engagement letter settles both before the work starts. For audits, SA 210 tells you what it must say. For everything else, a short letter does the same job.

What SA 210 requires for an audit

SA 210, "Agreeing the Terms of Audit Engagements", applies to audits of financial statements for periods beginning on or after 1 April 2010. Its objective is that the auditor accepts or continues an audit only when the preconditions for an audit are present and the auditor and management share an understanding of the terms.¹

The preconditions include an acceptable financial reporting framework, and management's acknowledgement that it is responsible for preparing the financial statements, for the internal control needed to do so, and for giving the auditor access to all relevant information and people. If the agreed terms are not accepted in writing, the auditor does not accept the engagement.¹

The agreed terms are recorded in an audit engagement letter or other written form, covering:¹

• the objective and scope of the audit;
• the auditor's responsibilities;
• management's responsibilities;
• the applicable financial reporting framework;
• the expected form and content of the reports the auditor will issue, and that they may differ in some circumstances.

ICAI's Council approved illustrative audit engagement letters under the Companies Act, 2013 in November 2014, to be added to Appendix 1 of SA 210: one for audits where reporting under section 143(3)(i) applies, and one where it does not.² They are the right starting point for company audits.

Recurring audits

For a recurring audit, a new engagement letter is not needed every year. The auditor decides whether the terms need revising, or whether the client needs reminding of the existing terms; if so, a new letter goes out.¹ Our recommendation is to check this at the same point each year, when the appointment is confirmed, and to send a new letter whenever the scope, the fee or the people on the client's side have changed.

A one-page letter for tax, GST and bookkeeping clients

These clients are most of a small firm's list, and nothing requires a letter for them. That is exactly why misunderstandings happen. Our recommendation is one page, signed or accepted by reply, covering:

• The services: for example, the income tax return for AY [year], GST returns monthly or quarterly, TDS statements, and what is not included, such as notices, revised returns or meetings with the department.
• The documents and dates: what the client sends and by when each month or year, with a link to the list, as in our ITR documents checklist.
• The fee: how much, when it is billed, and what extra work costs.
• Contact and consent: how you will contact them, and their agreement to WhatsApp messages, as in our client onboarding checklist.
• Their data: a short notice of what you collect and why, as in our DPDP guide for CA firms.

Wording you can copy

Replace the words in brackets. Have the final letter reviewed for your firm.

The year's due dates to put in each letter are in our compliance calendar.

What can run by itself

• The letter itself, filled in from the client's services, fee and document list, and sent with onboarding.
• The acceptance, recorded when the client replies or signs, with a reminder if they have not by the date.
• The yearly check for recurring audits, sent when the appointment is confirmed, as in our client reminders.
• The signed copy, filed in the client's folder, as in our document processing.

What stays with your team

• Whether to accept an audit, including the preconditions SA 210 asks you to establish.
• The scope and the fee, agreed with the client.
• Changes in terms, where SA 210 asks the auditor to consider whether there is reasonable justification.

More of what we write for CA practices is on the blog.

Questions CAs ask