SA 210- AGREEING THE TERMS OF AUDIT ENGAGEMENT

Preconditions for an Audit

•Acknowledgement by management of it's responsibility w.r.t
•preperation of financial statement as per FRF
•I.C so that financial statement should be free from frauds and error
•They will provide auditor with :
#access to all information
#additional information
#unrestricted access to persons if necessary

Audit Engagement Terms

•Audit Engagements letter includes
•Objectives of the Audit
•Scope of Audit
•Responsibility of Mgt. and Auditor
•Identification of FRF
•Reference to expected form & content of reports to be issued by the auditors
•If Laws/Regulation prescribes terms, then no need for separate written terms except that management
acknowledge the same.

Additional Consideration

Financial Reporting Standards are in conflict with law, Discuss with management

If additional disclosure in financial statements or amendment to standard is possible

Yes, OK No, Modify Audit Report

 Auditor should not accept audit if

Aforesaid precondition not present Prior to acceptance management impose

limitations

Recurring Audit - Whether to revise/remind the

terms?

Before completing Audit, if the client requests the auditor to change the terms that conveys
lower assurance

Consider whether justification for change is

reasonable

Yes No

If management doesn't permit Original Engagement,

Agree to new then withdraw for engagement and communicate to
terms TCWG and members

IMPORTANT QUESTION FOR EXAM

However, the following factors may make it appropriate to revise the terms of the audit
engagement or to remind the entity of existing terms:
• Any indication that the entity misunderstands the objective and scope of the audit.
• Any revised or special terms of the audit engagement.
• A recent change of senior management.
• A significant change in ownership.
• A significant change in nature or size of the entity's business.
• A change in legal or regulatory requirements.
• A change in the financial reporting framework adopted in the preparation of the F.S.
• A change in other reporting requirements.

Note – All the charts, chart discussion video and Question bank discussion
available on YouTube – CA Kapil Goyal Audit Discussion.