SA 210 – Agreeing the Terms of Audit Engagement
SA 210 – Agreeing the Terms of Audit Engagement explains the process of formally agreeing on the terms of audit between the auditor and the client. It requires the auditor to agree these terms through an audit engagement letter. This letter acts like a written agreement that clearly mentions the scope of audit, the responsibilities of management and the auditor, and the applicable financial reporting framework.
Audit Engagement Letter – Form and Content
The form and content of the audit engagement letter may vary from client to client. However, it would generally include reference to the following matters:
(a) Objective and Scope of Audit
Firstly, the letter states the objective and scope of the audit of the financial statements.
(b) Responsibilities of the Auditor
Secondly, it clearly explains the responsibilities of the auditor while conducting the audit.
(c) Responsibilities of Management
Similarly, it specifies the responsibilities of management in relation to the preparation of financial statements and cooperation during the audit.
(d) Applicable Financial Reporting Framework
In addition, it identifies the applicable financial reporting framework used for the preparation of the financial statements.
(e) Expected Form and Content of Audit Report
Further, it refers to the expected form and content of any reports to be issued by the auditor. It also states that there may be circumstances in which a report may differ from its expected form and content.
Moreover, other matters, as appropriate, may also be included in the engagement letter.
Recurring Audits
In the case of recurring audits, the auditor should consider whether circumstances require the terms of engagement to be revised. Accordingly, if conditions change, the auditor should update or reissue the engagement letter.
Change in Terms of Engagement
Where the terms of engagement are changed, the auditor and the client should agree on the new terms. However, if the auditor is unable to agree to a change of engagement and is not permitted to continue the original engagement, the auditor should take the following actions:
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Withdraw from the engagement, and
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Determine whether there is any obligation, either contractual or otherwise, to report the circumstances to other parties, such as:
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Those charged with governance
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Owners
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Regulators
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Limitation on Scope Prior to Audit Engagement Acceptance
If management imposes a limitation on the scope of the auditor’s work before accepting the audit engagement, and such limitation would result in a disclaimer of opinion, the auditor shall not accept the audit engagement. However, this does not apply where acceptance is required by law or regulation.
Conclusion
In conclusion, SA 210 ensures clarity and mutual understanding between the auditor and the client by clearly defining the terms of the audit engagement. Proper documentation through an audit engagement letter helps avoid misunderstandings, safeguards the auditor’s responsibility, and forms the foundation for conducting an audit in accordance with Standards on Auditing.