ISA 210 AGREEING THE TERMS OF AUDIT ENGAGEMENTS

 


Auditors should agree the terms of audit engagement with management or those charged with governance before the audit take place.

ISA 210 deals with those aspects of engagement acceptance that are within the control of the auditor.


Summary of ISA 210

(Effective for audits of financial statements for periods beginning on or after December 15, 2009)

Objective

The objective of the auditor is to accept or continue an audit engagement only through:

(a) Establishing whether the preconditions for an audit are present; and

(b) Confirming that there is a common understanding between the auditor and management or those charged with governance of the terms of the audit engagement.

Requirements

Preconditions for an Audit

To establish whether the preconditions for an audit are present, the auditor shall:   

  •  Determine whether the financial reporting framework to be applied in the preparation of the financial statements is acceptable.
  •  Obtain the agreement of management that it acknowledges and understands its responsibility:
    1. For the preparation of the financial statements in accordance with the applicable financial reporting framework,
    2.  For such internal control that is needed to prepare financial statements free from material misstatements
    3.   To provide the auditor with:
      •  Access to all information such as records, documentation and other matters necessary to prepare financial statements
      •  Access to additional information that may be required
      •  Unrestricted access to persons within the entity from whom to obtain audit evidence.

Agreement on Audit Engagement Terms

The agreed terms of the audit engagement shall be recorded in an audit engagement letter or other suitable form of written agreement and shall include:

(a) The objective and scope of the audit of the financial statements.

(b) The responsibilities of the auditor.

(c) The responsibilities of management.

(d) Identification of the applicable financial reporting framework for the preparation of the financial statements; and

(e) Reference to the expected form and content of any reports to be issued by the auditor; and

 (f) A statement that there may be circumstances in which a report may differ from its expected form and content

Recurring Audits

On recurring audits, the auditor shall assess whether circumstances require the terms of the audit engagement to be revised and whether there is a need to remind the client of the existing terms of the audit engagement.

Acceptance of a Change in the Terms of the Audit Engagement

The auditor shall not agree to a change in the terms of the audit engagement where there is no reasonable justification for doing so.

Additional Considerations in Engagement Acceptance

There three types of additional considerations in Engagement Acceptance:

1.      Financial Reporting Standards Supplemented by Law or Regulation

In this case the auditor shall determine whether there are any conflicts between the financial reporting standards and the additional requirements.

2.   Financial Reporting Framework Prescribed by Law or Regulation—Other Matters Affecting Acceptance

Management agrees to provide additional disclosures in the financial statements and the auditor’s report on the financial statements will incorporate an Emphasis of Matter paragraph, drawing users’ attention to the additional disclosures. The auditor’s opinion on the financial statements will not include such phrases “present fairly, in all material respects,” or “give a true and fair view” unless is required by law or regulation.

3.      Auditor’s Report Prescribed by Law or Regulations

An audit conducted in accordance with such law or regulation does not comply with ISAs. Accordingly, the auditor shall not include any reference within the auditor’s report to the audit having been conducted in accordance with ISAs.




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