Sa 210 – Agreeing The Terms Of Audit Engagements

Scope of this SA:

Ø  This SA deals with the Auditor’s responsibilities in agreeing the terms of the audit engagement with Management/TCWG.

Ø  This SA includes establishing that preconditions for an Audit are present.

Objective:

The auditor shall accept or continue Audit engagement only when -

Ø  the preconditions of an audit are present and

Ø  there is a common understanding between the Auditor and Management/TCWG.

Preconditions of an Audit:

In order to establish whether the preconditions of an Audit are present the auditor shall

·        determine whether the applied Financial Reporting Framework is acceptable

·        Obtain an agreement of the management that it acknowledges its responsibility

Ø  For preparation of FS in accordance with the applicable FRF and

Ø  For such internal controls as the management determines is necessary.

Ø  For providing the auditor with access to all information and to persons within the entity from whom the auditor determines necessary to obtain audit evidence.

Note:

·        Where there is a limitation on scope of the auditor, which the auditor believes will result in the Auditor disclaiming his opinion; he shall not accept such a limited engagement, unless required by law or regulation to do so.

·        If the preconditions of an Audit are not present, he shall discuss the matter with management and he shall not accept the audit engagement-

Ø  If he determines that the applied Financial Reporting Framework is unacceptable or

Ø  An agreement aforementioned is not obtained.

·        In case of Recurring Audits, the auditor shall assess whether there are circumstances that require the terms of audit engagement to be revised.

Change in the terms of audit engagement:

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

·        If the terms of audit engagement are changed, the auditor shall agree on & record the new terms of engagement in an engagement letter or other suitable written agreement.

·        If the auditor is unable to agree to change of terms and management do not permit to continue the original audit engagement, the auditor shall

Ø  Withdraw from engagement and

Ø  Report the circumstances to other parties if there is an obligation to do so (like regulators, TCWG ..)

Financial Reporting Standards issued by law/ regulation [ACCOUNTING STANDARDS ISSUED BY ICAI]:

·        Where there exists a conflict between the Accounting Standards and additional requirements, the auditor shall discuss with the management and shall agree whether

Ø  The additional requirements can be met through additional disclosures in the Financial Statements or

Ø  The description of applicable Financial Reporting Framework in the FS can be amended accordingly.

·        If neither of the above is possible the auditor shall modify his opinion.