ISA 210

AGREEING THE TERMS OF AUDIT ENGAGEMENT

SCOPE
OBJECTIVE
Auditor’s responsibilities in
agreeing the terms of audit To accept or continue and audit engagement
engagement with only when the basis upon which it is to be
management or TCWG performed has been agreed through:
a. Whether preconditions for an audit are
present
b. Confirm that there is a common
understanding between the auditor and
management of the terms of audit
engagement

FIRST OBJECTIVE:WHAT IS PRECONDITION

2.Agreement of management or TCWG

1.The use by management of an
to the premise on which audit is
acceptable FRF in the preparation of FS
conducted

WHAT IS PREMISE? And what agreement to be obtained?

Obtain the agreement of management that it acknowledge
and understand its responsibility:
DETERMING THE APPLICABILITY OF
 For the preparation of FS in a/c with AFRF
FINANCIAL REPORTING FRAMEWORK
 For such IC as management determines is necessary
Nature of the entity for e.g. banks, to enable the preparation of FS free from Material
manufacturing and mutual funds Misstatement whether due to error or fraud
 To provide the auditor with:
Law or regulation prescribed o Access to all information of which management
is aware that is relevant to the preparation of
FS
o Additional information that auditor may request
from the management for the purpose of audit
o Unrestricted access to persons within the entity
from whom auditor determines it necessary to
obtain audit evidence
 SECOND OBJECTIVE: AGREEING THE TERMS OF ENGAGEMENT

The auditor shall agree the terms of audit engagement with management or TCWG in an AUDIT
ENGAGEMENT LETTER

WHAT TERMS OF AUDIT ENGAGEMENT SHOULD BE INCLUDED IN ENGAGEMENT LETTER?

Reference to the
Objective and
Responsibilities Responsibilities Identification of expected form
Scope of Audit of
of Auditor of Management AFRF and content of
FS
Audit report

WHAT ARE THE ADVANTAGES OF ENGAGEMENT LETTER

It is in the interest of both the entity and the auditor that the auditor sends an audit
engagement letter before the commencement of the audit to help avoid misunderstanding
with respect to audit

WHAT ADDITIONAL MATTERS CAN BE COMMUNICATED IN ENGAGEMENT LETTER (OPTIONAL)

The fact that To inform The A request for

Arrangement Expectation management
because of regarding that the auditor basis on
inherent about the which to
planning and manageme acknowledge
limitation of an performance of nt will events fees are
audit, there is an occurred compute receipt of the
the audit provide Audit
unavoidable risk including the written after the d and
that some date of any engagement
composition of an representati letter and to
material audit on Auditors billing
misstatement report arrange agree the
may not be ment terms of
detected engagement
Arrangement Arrangement Arrangement to Any restriction of Any obligation to
regarding the regarding the be made with the auditors provide audit
involvement of involvement of previous auditor liability working papers
other auditor or Internal auditor to other entities
expert
 RECURRING AUDIT

Lets Assume you have finalized 2016 audit now do we need to send Engagement letter again to
Management or TCWG for the audit of 2017 i.e. for RECURRING AUDIT?

The auditor may decide not to send a new engagement letter each period however on
recurring audit, 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 engagement.

A Any
A Any indication
significant
A recent change A change A change revised or that the
A change in
change of significant in the in legal or in other special entity
nature or
senior change in financial regulatory reporting terms of misunders
size of tands the
managem ownership reporting requirem requireme the audit
the objective
ent framewor ents. nts. engagem
entity’s and scope
k ent.
business. of
t
e
a
u
di
t.
 ACCEPTANCE OF A CHANGE IN TERMS OF ENGAGEMENT

The auditor shall not agree to a change in terms of the audit engagement where there is no reasonable
justification for doing so
Always consider:
Whether there is reasonable
justification for doing so;
Reason for change Information in request of which the
in terms of change is requested by the
management; and
engagement
legal or contractual implication of the
change

Change in Misundersta Restriction on the scope of

circumstanc nding as to audit engagement.
e affecting nature of an
the needs The auditor shall consider the
audit as justification given for request
for the originally
service particularly implication of a
requested restriction on the scope of audit
engagement

Reasonable basis
A change may not be considered reasonable if it
appears that change relates to information that is
incorrect, incomplete or otherwise unsatisfactory
If the terms of the audit E.g.: where auditor is unable to obtain SAAE
engagement are changed, the regarding receivable and entity ask the audit
auditor and management shall
engagement to be changed to review engagement
agree on and record the new
terms of the engagement in an
engagement letter.

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.
 FOLLOWING ARE NOT PART OF CAF 09 SYLLABUS

REQUEST TO CHANGE TO A REVIEW OR RELATED SERVICE

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;
 Information in request of which the change is requested by the management; and
 legal or contractual implication of the change

If the auditor concludes that there is reasonable justification to change the audit engagement to a review or a related service, the
audit work performed to the date of change may be relevant to the changed engagement; however, the work required to be
performed and the report to be issued would be those appropriate to the revised engagement. In order to avoid confusing the
reader, the report on the related service would not include reference to:
(a) The original audit engagement; or
(b) Any procedures that may have been performed in the original audit engagement, except where the audit
engagement is changed to an engagement to undertake agreed-upon procedures and thus reference to the procedures
performed is a normal part of the report.

AUDIT OF COMPONENTS

When the auditor of a parent entity is also the auditor of a component, the
factors that may influence the decision whether to send a separate audit
engagement letter to the component include the following

Whether a Degree of
Who Legal requirements Degree of
separate independence of
appoints the in relation to audit ownership by
auditor’s report the component
component appointments; parent
is to be issued management from
auditor
on the the parent
component entity

IS THERE ANY EXCEPTION TO INCLUDE ALL THE CONTENT OF ENGAGEMENT LETTER

If law or regulation prescribes in sufficient detail the terms of the audit

engagement (objective, MR, AR, AFRF, Report), 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
ENGAGEMENT LETTER FORMAT AS PER ISA 210