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Common Accounting Letters You May Have To Sign

May 21, 2015

Have you ever been to your accountant, lawyer or financial advisor’s office and before leaving you’ve signed a dozen letters and documents!  Have you ever wondered why there are so many letters and signatures required and what they all mean? For professional accountants, some letters are required by our standards and some are used to ensure all parties are under the same understanding for the work being performed. The following will discuss some common letters and their purpose.

Engagement letter – an engagement letter is a signed agreement between the public accounting firm and the client.  This letter states the terms and conditions of the engagement identifying such items as the scope of services to be provided, the date by which the work is to be completed, and the fees.  This type of letter is commonly used to reduce the risk of any misinterpretations between the public accounting firm and the client.

Representation letter – a representation letter is a letter issued by the client to the accountant and must be signed by the client prior to the accountant issuing the financial statements. Its purpose is to let the client’s management declare in writing that the financial statements and other representations to the accountant are sufficient, appropriate and without omission of material facts.

Management letter – a management letter is provided to the client after the completion of the engagement.  It is important to state that the purpose of the work performed by the public accounting firm was not to find weaknesses, but certain items were identified as a byproduct of the engagement.  This letter is used to identify internal control related matters as well as opportunities for the client to make operational improvements.

Takeover letters – the takeover letter is an inquiry of the predecessor auditor. This is a necessary procedure because the predecessor auditor may be able to provide information that will assist the successor auditor in determining whether or not to accept the engagement.

Independence letters – the independence letter is required for audits of listed entities only, for other engagements it is optional.  This letter states that the practitioner is independent of the client.  Items to consider in regards to independence would include holding a financial interest in a client, holding a position that gives the right or responsibility to exert significant influence over the financial or accounting policies of the client, personal or business relationships of immediate family, close relatives, partners or retired partners with the client, economic dependence on a client, etc.

Resignation letter – a resignation letter is a letter stating that the accountant no longer wants to continue with an engagement; specific reasons may be stated.

Commonly, other special letters for engagements such as tax reorganization work, due diligence procedures, the preparation of financial projections, various tax elections, etc. are utilized for these services by professional accountants.

If you would like more information on this topic, please contact a member of the Empire CPA team by filling out the contact form below.

Canadian and foreign tax laws are complex and have a tendency to change on a frequent basis. As such, the content published above is believed to be accurate as of the date of this post. Before implementing any tax planning, please seek professional advice from a qualified tax professional. Empire, Chartered Professional Accountants will not accept any liability for any tax ramifications that may result from acting based on the information contained above.

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