The Importance of an Agreement Between Auditor and Client

An agreement between auditor and client is a binding contractual document that defines the scope of your auditing duties, what you’re expected to deliver and how long it should take. It also specifies who’s responsible for each portion of the audit and what your fees will be, among other things. In addition to this, the audit agreement may include other terms such as dispute resolution procedures, indemnification clauses, and provisions related to the use of your work by third parties.

The purpose of an agreement between you and your clients is to prevent misunderstandings, manage expectations, and provide a legal basis for the professional relationship. In some cases, the agreement might also stipulate other professional services that your firm can provide to the client. Depending on the nature of the engagement, you may want to add other important provisions such as:

Having an agreement between you and your clients can help prevent scope creep. It can also help you keep your audit within its predetermined boundaries. Changing the objective and scope of an engagement can only be done by the client if there’s been a change in circumstances affecting the entity’s need for the service, a misunderstanding concerning the nature of the audit or related service originally requested, or a restriction on the scope imposed by management.

Despite the importance of an agreement between you and your clients, disagreement is inevitable at some point. The reason for this is that both you and your clients want an added-value service with a relational approach, but at the same time you need to maintain your independence. Prior literature documents that when the risk of material misstatement is high, auditors are less likely to acquiesce to client requests (DeAngelo & Jiambalvo).