## SA 210 — Letter of Engagement (LOE)

### What Is the LOE?

The Letter of Engagement (also called the Audit Engagement Letter) is the written agreement between the auditor and the client that documents the agreed terms of the audit engagement.

> The form and content of the LOE may vary for each entity — there is no single prescribed format.

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### Contents of the LOE (8 Key Items)

#	Content Item
1	Scope of the audit — reference to applicable laws, SAs, and Code of Ethics
2	Letter of Weakness — auditor will communicate internal control deficiencies
3	Inherent limitations of an audit (reasonable, not absolute assurance)
4	Written Representations — management will provide a letter of representation
5	Premises / Pre-conditions for accepting the audit (management's responsibilities)
6	Basis for fees and billing arrangements
7	The audit may be subjected to a Peer Review under the CA Act, 1949
8	Acknowledgement request — client asked to acknowledge receipt of the LOE

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### Memory Aid: S-L-I-W-P-F-P-A

Scope of audit
Letter of Weakness (IC deficiencies)
Inherent limitations
Written Representations
Premises for accepting audit
Fees and billing basis
Peer Review possibility
Acknowledgement of receipt

> Exam tip: The LOE protects both parties. The auditor uses it to define scope; the client uses it to understand what the audit covers and doesn't cover.

Worked example

### Example 1

Engagement Letter Scenario:

An auditor is appointed as statutory auditor of RST Pvt. Ltd. The engagement letter should include:

1. Scope: 'We will audit the financial statements under the Companies Act 2013 in accordance with SAs issued by ICAI.'

2. IC deficiencies: 'We will communicate any significant deficiencies in internal control identified during our audit.'

3. Inherent limitations: 'Our audit provides reasonable but not absolute assurance.'

4. Written representations: 'Management will provide a representation letter as of the date of our audit report.'

5. Premises: 'Management acknowledges responsibility for preparing FS under Ind AS, maintaining IC, and providing us unrestricted access.'

6. Fees: 'Our fee is ₹3 lakhs, payable 50% on commencement and 50% on completion.'

7. Peer Review: 'This engagement may be subject to peer review under the CA Act, 1949.'

8. Acknowledgement: 'Please sign and return the duplicate copy to confirm your acceptance.'

⚠️ Common exam mistakes

Listing fewer than the 8 required contents — exam questions often award marks for each point listed.
Confusing the LOE with the Written Representation letter (LOR) — the LOE is sent by the auditor to the client before the audit begins; the LOR is sent by management to the auditor at the end of the audit.
Omitting the Peer Review mention — students often forget this specific content point.
Saying the LOE has a prescribed format — SA 210 explicitly states that form and content may vary for each entity.
Forgetting the acknowledgement request — the LOE should ask the client to confirm receipt, making it a bilateral agreement.

Reference:

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Form and Content of the Letter of Engagement (LOE)

Worked example

⚠️ Common exam mistakes