The engagement letter is the audit service contract between the company and the audit firm — a document most FDI enterprises sign on the firm’s standard template without negotiation. Yet Vietnamese Auditing Standard No. 210 (VSA 210 — the audit engagement) requires the agreed terms to be clear on: the objective and scope of the audit, the auditor’s responsibilities, management’s responsibilities (including the audit premise — management’s acknowledgement of its responsibility for the financial statements and internal control), the applicable financial reporting framework, and the expected form of the audit report. The four clause groups below are where a company should use its negotiating power.
Scope and fees: sealing the two biggest leak points
Scope: state exactly which entities, branches and components are in scope, whether the auditors attend the stock count and issue confirmation letters for receivables and bank balances, how many draft review rounds are included, and — critically — what is not included (tax reviews, transfer-pricing advice, consolidation audits); if exclusions are not written down, management easily assumes they are covered by the fee. Companies with an overseas parent should add the group reporting duty: the reporting-package deadline, the group’s templates and the contact channel — missing a group deadline usually costs more than missing an internal one. Fees: the Law on Independent Audit only requires the audited entity to pay the fee under the contract (Clause 7, Article 39) — there is no statutory fee schedule. Ask for: a fixed fee for the defined scope; out-of-scope work billed only with prior written approval, with hourly rates and a cap on extras stated upfront; and a clause on what happens cost-wise if the company’s own late preparation prolongs the audit — which disciplines both sides to respect the PBC timetable (see FDI-LC-2023).
Missed-detection responsibility, liability caps and confidentiality
On responsibility for undetected misstatements: an audit opines on the financial statements as a whole and does not guarantee detection of every fraud — that is inherent in the standards and cannot be negotiated away. The audit firm nevertheless remains liable under the law for practising without due care (the Law on Independent Audit carries its own administrative sanctions for audit firms and practising auditors, and audit firms must carry professional liability insurance or maintain a professional risk reserve fund). On liability caps: this is a civil agreement between the two parties — common practice links the cap to a multiple of the audit fee. Three negotiation points: (1) never accept exclusion of liability for wilful acts or fraud; (2) the cap binds only the contracting parties, not third parties such as banks or the tax authority; (3) any clause conflicting with mandatory law is void to that extent. On confidentiality: auditors owe a statutory duty of confidentiality over the audited entity’s information; the contract should add who may access the working papers, how documents are returned when the engagement ends or is terminated, and notice duties if the auditor changes mid-year (see FDI-LC-2028). Finally, specify the language of the audit report (bilingual Vietnamese–English/Chinese originals where the group requires them) to avoid end-of-season surprises.
Frequently asked questions
What clauses must an audit engagement letter contain?
Under VSA 210: the objective and scope of the audit, the auditor’s responsibilities, management’s responsibilities and the audit premise, the applicable financial reporting framework, the expected form of the audit report, and the fee. A company should add the timetable and PBC milestones, out-of-scope work rules, confidentiality, liability caps and termination terms.
How does an engagement letter differ from a management letter?
Completely: the engagement letter is the contract signed before the audit, setting scope and responsibilities; the management letter is issued after the audit and covers internal control deficiencies and recommendations. What there is to negotiate sits in the engagement letter.
Should the audit firm’s liability be capped in the contract?
A reasonable cap (usually a multiple of the audit fee) keeps the contract commercially workable, but avoid a blanket exclusion and never exclude wilful acts or fraud. Remember the cap binds only the two contracting parties — it has no effect on third parties and cannot override mandatory law.
Can the audit fee be adjusted in the middle of the audit?
Only for out-of-scope work agreed in advance in writing. Lock the risk down: a fixed fee for the original scope, hourly rates and a cap for extras written into the contract, and every addition confirmed by email before the work starts.
This article has been quality-reviewed by the FLAW AI Legal Council