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    Day 4 Book Inter Jan'25

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    Day 4 Book Inter Jan'25

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    Day 4 book Inter jan’25

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    Day 4 Book Inter Jan'25

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    of 3

    Ch-1 Intro to Auditing

    SA 210: Agreeing the Terms of Audit Engagement

    Objective of auditor is to accept or continue an audit engg. only when basis upon which it is to be
    performed has been agreed, through:
    A. Establishing whether preconditions for audit are present and
    B. Confirming that there is a common understanding b/w auditor and mgt and, where appropriate,
    TCWG of terms of the audit engg.

    Preconditions for Audit [RTP May-21]


    In order to establish whether preconditions for audit are present, auditor shall:
    (a) Determine whether FRF is acceptable; and
    (b) Obtain agreement of mgt that it acknowledges and understands its responsibility:
    (i) For preparation of F.S. as per applicable FRF
    (ii) For internal control as mgt considers necessary and
    (iii) To provide auditor with:
    ü Access to all information such as records, documentation and other matters
    ü Additional information that auditor may request from mgt for audit &
    ü Unrestricted access to persons within entity from whom auditor determines it necessary to
    obtain audit evidence.

    What if Pre-conditions not Present?


    If preconditions for audit not present, discuss the matter with mgt.
    Unless required by L/R, auditor shall not accept proposed audit engg: -
    a) If auditor has determined that FRF to be applied in preparation of FS is unacceptable or
    b) If agreement of mgt is not obtained on matters relating to understanding of responsibility of
    preparation of FS, internal controls for preparation of FS, providing access to all info. and
    unrestricted access to persons within entity.

    Contents of Engagement Letter [May-17]


    Agreed terms of audit engg shall be recorded in an audit engg. letter or other suitable form of written
    agreement. EL is sent by auditor to his client.

    It shall include:
    a) Objective and scope of audit of FS
    b) Responsibilities of the auditor
    c) Responsibilities of management
    d) Identification of applicable FRF for preparation of FS and
    e) Reference to expected form and content of reports to be issued by auditor & a statement that
    there may be circumstances in which report may differ from its expected form and content.
    CA Shubham Keswani 11
    Ch-1 Intro to Auditing
    If law or regulation prescribes in sufficient detail terms of audit engg, auditor need not record them
    in written agreement, except for fact that such law or regulation applies and mgt acknowledges &
    understands its responsibilities.

    Limitation on Scope Prior to Audit Engagement Acceptance

    Impose Auditor believes limitation


    Mgt or TCWG limitation on would result
    scope in Disclaimer of Opinion

    Auditor shall not accept such limited engg.

    Acceptance of Change in Terms of Audit Engg.


    Auditor shall not agree to change in terms of audit engg where there’s no reasonable justification.

    Request from Entity to change Terms of Audit Engg-When Reasonable Justification Exists?
    Request from entity for auditor to change terms of audit engg may result from
    ü change in circumstances affecting need for service,
    ü misunderstanding as to nature of an audit as originally requested or
    ü restriction on scope of audit engg, whether imposed by mgt or caused by other circumstances.

    Auditor considers justification given, particularly implications of a restriction on scope of audit engg.

    Change in circumstances that affect entity’s requirements or misunderstanding concerning nature of


    service originally requested may be considered a reasonable basis for requesting a change in audit engg.

    In contrast, a change may not be considered reasonable if it appears that change relates to information
    that’s incorrect, incomplete or otherwise unsatisfactory. An eg. might be where auditor unable to obtain
    SAAE regarding receivables & entity asks for audit to be changed to review engagement to avoid a
    qualified opinion or a disclaimer of opinion.

    What should auditor consider before agreeing to change audit engg to engg. providing lower level of
    assurance?
    If, prior to completing audit engg, auditor is requested to change audit engg. to an engg. that conveys
    lower level of assurance, determine whether there is reasonable justification for doing so.

    CA Shubham Keswani 12
    Ch-1 Intro to Auditing
    Before agreeing to change an audit engg. to a review or a related service, auditor who was engaged to
    perform audit as per SAs may also need to assess legal or contractual implications of change.

    If auditor concludes there’s reasonable justification to change audit engg. to a review or a related
    service, audit work performed till date of change may be relevant to changed engagement.

    However, work required to be performed and report to be issued would be those appropriate to the
    revised engg.

    In order to avoid confusing reader, report on related service would not include reference to:
    (a) Original audit engg or No reference
    (b) Any procedures that may have been performed in original audit engg, to original
    except where audit engagement is changed to engg. to undertake agreed- upon procedures and thus
    reference to procedures performed is a normal part of report.

    If terms of audit engg are changed, auditor and mgt shall agree and record new terms of engg. in an
    engg letter or other suitable form of written agreement.

    Recurring Audit Engagements à New Engg Letter? [RTP May-21]


    Auditor shall assess whether circumstances require terms of audit engg. to be revised and whether
    there is a need to remind entity of existing terms of audit engg. Auditor may decide not to send new
    audit engg letter.

    Following factors may make it appropriate to revise terms of audit engg. or remind entity of existing
    terms:
    ü Any indication that entity misunderstands objective and scope of audit.
    ü Any revised or special terms of audit engagement.
    ü A recent change of senior management.
    ü A significant change in ownership.
    ü A significant change in nature or size of the entity’s business.
    ü A change in legal or regulatory requirements.
    ü A change in FRF adopted in preparation of F.S.
    ü A change in other reporting requirements.

    CA Shubham Keswani 13

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