Professional Documents
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1. Effective Date -This SA is effective for audits of financial statements for periods beginning on or after April 1,
2010.
2. Scope-This Standard on Auditing (SA) deals with the auditors responsibilities in agreeing the terms of the
audit engagement with management and, where appropriate, those charged with governance. This SA also
establishes that there are certain preconditions to the audit, the responsibility of which rests with the
management and, where appropriate, those charged with governance.
3.Objective-The objective of the auditor is to accept or continue an audit engagement only after:
(a) Establishing that whether the preconditions for an audit are present; and
(b) Confirming that there is a common understanding between the auditor and management and, where
appropriate, those charged with governance of the terms of the audit engagement.
4. Definitions- For purposes of the SAs, the following term has the meaning attributed below:
(i) Preconditions for an audit The use by management of an acceptable financial reporting framework in the
preparation of the financial statements and the agreement of management and, where appropriate, those
charged with governance to the premise on which an audit is conducted.
For the purposes of this SA, references to management should be read hereafter as management and, where
appropriate, those charged with governance.
6. Limitation on Scope Prior to Audit Engagement Acceptance - If management or those charged with
governance impose a limitation on the scope of the auditors work in the terms of a proposed audit engagement
such that the auditor believes the limitation will result in the auditor disclaiming an opinion on the financial
statements, the auditor shall not accept such a limited engagement as an audit engagement, unless required by
law or regulation to do so.
7. Other Factors Affecting Audit Engagement Acceptance -If the preconditions for an audit, as referred in
para 5(i) and 5(ii), are not present, the auditor shall discuss the matter with management and shall refuse to
accept the proposed audit engagement unless required by law or regulation to do so.
8. Agreement on Audit Engagement Terms - The auditor shall agree the terms of the audit engagement with
management and shall record them in an audit engagement letter or other suitable form of written agreement
including:
(i) The objective and scope of the audit of the financial statements;
(ii) The responsibilities of the auditors well as management;
(iii) Identification of the applicable financial reporting framework for the preparation of the financial statements;
and
(iv) Reference to the expected form and content of any reports to be issued by the auditor and a statement that
there may be circumstances in which a report may differ from its expected form and content.
If law or regulation prescribes in sufficient detail the terms of the audit engagement, then the auditor need not
record them in a written agreement, except for the fact that such law or regulation applies and that management
acknowledges and understands its responsibilities as set out in paragraph 5(ii). If law or regulation prescribes
responsibilities of management similar to those described in paragraph 5(ii), the auditor may use the wording of
the law or regulation to describe them in the written agreement. For those responsibilities that are not prescribed
by law or regulation such that their effect is equivalent, the written agreement shall use the description in
paragraph 5(ii).
9. 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 entity of the existing terms of the
audit engagement.
10. 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. If, prior to
completing the audit engagement, the auditor is requested to change the audit engagement to an engagement
that conveys a lower level of assurance, the auditor shall determine whether there is reasonable justification for
doing so. If the terms of the audit engagement are changed, the auditor and management shall agree on and
record the new terms of the engagement in an engagement letter or other suitable form of written agreement. If
the auditor is unable to agree to a change of the terms of the audit engagement and is not permitted by
management to continue the original audit engagement, the auditor shall:
(a) Withdraw from the audit engagement where possible under applicable law or regulation; and
(b) Determine whether there is any obligation, either contractual or otherwise, to report the circumstances to
other parties, such as those charged with governance, owners or regulators.
SA-210
AGREEING THE TERMS OF AUDIT ENGAGEMENTS
1 Effective Date 1-Apr-2010
2 Scope Auditor's responsibility regarding terms of audit
engagement.
3 Objective a. Precondition for audit are present.
b. Mutual Understanding.
4 Requirements / Preconditions of a. Acceptable financial reporting framework.
Audit
b. Management agreement regarding its
responsibility.
5 Auditor's refusal to accept the a. If there is a limitation on scope.
engagement b. If the preconditions for audit are not present.
6 Clauses in Audit Engagement Letter a. Objective and scope of audit.
b. Responsibilities of Auditor & Management.
c. Applicable financial reporting framework.
d. Form & content of reports to be issued by the
auditor.
e. Any other terms as prescribed by Law or
Regulation.
7 Recurring Audits Revise terms of audit engagement, if circumstances
require so.
8 Change in terms of Audit a. Acceptable Change
Engagement i) Proper documentation of changed terms.
b. Unacceptable Change
i) Withdraw from engagement.
ii) Report to other parties as per contractual
obligation.
9 Conflicts between FRF* and Auditor should resort to
additional requirements a. Additional disclosures, or
b. Amendment of Financial Statement.
If none of the above is possible, modify his opinion.
1 Unacceptable FRF* prescribed by Auditor shall not accept the engagement unless:-
0 Law
a. Management provides additional disclosures,
b. Emphasis of Matter paragraph is included in
Auditor's Report.
c. Phrases such as "give a true and fair view" are
excluded
If none of the above conditions are present, the
auditor shall evaluate the effect of misleading nature
of financial statement on auditor's report and
include its reference in terms of audit engagement.
11 Auditor's Report prescribed by Law Auditor shall evaluate
or Regulation a. Possibility of misunderstanding by users of the
Report.
b. Additional explanations required to mitigate such
misunderstanding.