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SA 210: Agreeing the Terms of Audit Engagement - Coggle Diagram
SA 210: Agreeing the Terms of Audit Engagement
Objective of Auditor
The objective of the auditor is
to accept or continue
an audit engagement
only when
the
basis
upon which it is to be performed has been
agreed
through:
Establishing whether the preconditions for an audit are present, and
Confirming that there is a common understanding between the auditor and the MGT & TCWG of the terms of audit engagement.
:star:
Preconditions for an Audit
Determine whether the FRFW is acceptable, and
Determining the Acceptability of FRFW:
Whether L&R prescribes the applicable FRFW
Nature of Entity
Nature of FS
Purpose of FS
Factors affecting assessment of suitability of framework:
Relevance
Completeness
Reliability, in that the info. provided in FS
Neutrality
Understandability
MGT acknowledges and understands its responsibility (SA 200, Audit Premise).
For IC necessary to enable the preparation of FS that are free from MM, whether due to fraud or error
To provide the auditor with:
Access to all info.
Addition info. that auditor may require
Unrestricted access to those within the entity
Preparation of the FS in accordance with applicable FRFW
Limitations on Scope PRIOR to Audit Engagement Acceptance
(SA 705 for limitations post acceptance)
Auditor
shall not accept
such a limited engagement as an audit engagement, unless required by L&R to do so.
Agreement on Audit Engagement Terms
Engagement Letter shall include
Objectives and scope of audit of FS
Responsibilities of Auditor (SA 200)
Responsibilities of MGT
Identification of applicable FRFW
Reference to expected form and content of any reports
Form and Content of Audit Engagement Letter - Other Matters
Elaboration of scope of audit (incl. reference to applicable legislation, regulations, SAs, ethical and other pronouncements of professional bodies to which auditor adheres)
Form of any other communication of results of the audit engagement
The fact that because of inherent limitations of audit, together with inherent limitations of IC, there is an unavoidable risk that some MM may not be detected, even though audit is properly planned and performed
Arrangements regarding the planning and performance of audit, incl. composition of audit team
The expectation that MGT will provide written representations (WR)
When relevant, the fol. points could also be made in the audit engagement letter
Involvement of internal auditors and other staff of the entity
Arrangements concerning involvement of other auditors and experts
Arrangements to be made with predecessor auditor, if any, in case of an initial audit
Any restriction of the auditor's liability when such possibility exists
A reference to further arrangements between the auditor and the entity
If L&R prescribes in sufficient detail the terms of audit engagement, the auditor need not record them in a written agreement, except for a letter acknowledging
The fact that such L&R applies, and
The MGT acknowledges and understands its responsibilities of Audit Premise
The auditor shall agree the terms of audit engagement with MGT or TCWG, as appropriate. It shall be in a form of a written letter from the auditor to the MGT.
Audit of Components
Whether to send a separate EL to the component depends on the fol.:
Degree of Independence of component's MGT from parent entity
Legal requirements in relation to audit appointments
Who appoints the Component Auditor?
Whether a separate AR is to be issued on the component?
Degree of ownership by parent
Recurring Audits
The Auditor may decide not to send a new audit engagement letter or other written agreement each period.
When to send new? — Any indication that the entity misunderstands the objective and scope of audit.
Any revised or special terms
A recent change in senior MGT
A significant change in ownership
A significant change in nature and size of entity's biz.
A change in L&R requirements
A change in FRFW adopted in preparation of FS
A change in other reporting requirements
Acceptance of a Change in the Terms of Audit Engagement
Accept only if there is a reasonable justification for doing so where there is a reduction in scope.
New terms — New Agreement in writing
If changes unsuitable to auditor, and MGT refuses to continue, auditor to:
Withdraw, and
Determine whether there is any obligation, either contractual or otherwise, to report the circumstances to other parties such as TCWG, owners, or regulators.
Additional Considerations in Engagement Acceptance
FR Standards
SUPPLEMENTED
by L&R
a. Can be met through additional disclosures in FS
b. Description of applicable FRFW in FS can be amended accordingly
FR Standards
PRESCRIBED
by L&R — If, acc. to auditor, FRFW prescribed by L&R would be unacceptable, he shall accept the audit engagement only if:
a. MGT agrees to provide additional disclosures req. to avoid statements being misleading, and
b. The terms of engagement specify that:
AR shall incorporate an EOM paragraph, drawing users' attention to this, and
AR shall not include phrases, 'Present Fairly, in all material aspects' or 'give a T&F view in accordance with applicable FRFW' unless L&R so requires.
AR prescribed by L&R
L&R might prescribe layout or wording in form or in items that are significantly different from SAs.
Shall evaluate whether users might misunderstand the assurance obtained from audit of FS, and if so whether additional explanation in AR can reduce the possible misunderstanding.
If, acc. to the auditor, explanation cannot reduce such misunderstanding, auditor shall not accept such audit engagement.
However, auditor should disclose that he is encouraged to apply SAs.
Shall not include any reference to the Audit being conducted in accordance with SAs.