Auditing is a process wherein businesses evaluate the effectiveness of internal control and management. Companies conduct audits for the following reasons:
- Achieving business goals
- Reporting on financial transactions
- Preventing fraud or misappropriation of assets
- Minimizing the cost of capital; and
- Assessing risks and mitigating it
These audits may be carried out periodically or while incorporating technology to restructure the business to monitor the efficacy of the internal controls. An audit agreement is a type of professional service agreement stipulating the terms and conditions regarding the engagement of an auditor.
Given the gravity of the situation, it goes without saying that an audit agreement is a vital and sensitive document. It not only outlines the basic expectations from the auditor, but it also defines procedures and guidelines for handling the audit and audit engagement.
Parts of an audit agreement template
Every audit agreement must contain the following elements:
1. Introduction to an audit agreement template
Naturally, every audit agreement must begin with an introduction that highlights the names of the parties involved. It also records the date from which the audit agreement comes to effect. Some introductions may carry the period of auditor engagement or keep a flexible end date depending on the task. Additionally, since auditing is a recurring activity, the introduction may also define the frequency of the audits. Before the agreement takes place, an audit proposal is sent.
2. Legislative rules and regulations of an audit agreement template
Given that auditing is an extremely sensitive process that requires the highest standards of practice, it is essential that you abide by certain rules and regulations. Depending on the local laws and your prior experience and practice, the contract can include a standard code of conduct for you to comply with while carrying out the auditing exercise.
3. Audit planning and audit program with an audit agreement template
Auditing may mean different things for different individuals and businesses. Hence, it is crucial for the audit agreement to define the fundamental duties that the auditor needs to carry out. Thus, this section deals with the scope of the work and details the expectations from the auditor. Some companies outline a roadmap or a timeline for the auditing process.
Further, since you are an external party, you may not know the ins and outs of the business, for which the company may provide you with support staff. Utilize this portion to elaborate on the minimum requirements in terms of education, qualification, and experience for the staff that will aid the audits. The company may also delegate certain powers to you for effective staff management.
4. Evidence and reporting in the audit agreement template
Documentation and supporting the finding with relevant evidence is one of the core skills that every auditor must possess. Your audit reports must contain a summary of the work carried out, the key findings, and the final result. However, the process of submission and acceptance of this report varies from business to business. Hence, this portion of the audit agreement deals with how the auditor must create the report and support it with relevant documents.
5. Key performance indicators in the audit agreement template
Employers may dictate key performance indicators that govern the entire auditing process. Indicators like Quality Assurance, Audit Targets, Protocol, Response Times, etc. may calibrate your performance as an auditor. You can negotiate on these KPIs on the basis of their feasibility and attainability.
This concludes the main elements of an audit agreement. However, this is a very basic skeleton as businesses can modify it as per their preference.
You may create a professional audit agreement that you can forward to the employer so that you have the upper hand when these matters are discussed. Fortunately, Bonsai contains several audit agreement templates that you can download and edit. Try it now!