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Audit International Auditing Standards

ISA 210 Summary

Agreeing the Terms of Audit Engagements

ISA 210 Definitions

Preconditions for an audit – definition

The use by management of an acceptable financial reporting framework in the preparation of the financial statements and the agreement of management and, where appropriate, those charged with governance to the premise on which an audit is conducted.

ISA 210 Effective date 15 December 2009

ISA 210 Scope

ISA 210 deals with the auditor’s responsibilities in agreeing the terms of the audit engagement with management and, where appropriate, those charged with governance.

  • establishing certain preconditions for an audit.
  • establishing responsibility which rests with management and, where appropriate, those charged with governance.

ISA 210 Objective

To accept or continue an audit engagement only when the basis upon which it is to be performed has been agreed.

  • Establishing whether the preconditions for an audit are present; and
  • Confirming that there is a common understanding between auditor and management and where appropriate those charged with governance.

ISA 210 Requirements

  • Financial reporting framework to be applied in the preparation of the financial statements shall be acceptable.
  • Management acknowledges and understands its responsibility;
    • For the preparation of the financial statements in accordance with the applicable financial reporting framework, including where relevant their fair presentation;
    • For such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error; and
    • To provide auditor with access of all information, additional information and unrestricted access to person in company for audit.
  • If limitation on the scope of audit prior to acceptance of audit that will result in disclaiming opinion don’t accept engagement unless required by law.
  • Agree the terms of audit engagement with management or those charges with governance and Engagement letter shall at least include;
    • The objective and scope of the audit of the financial statements;
    • The responsibilities of the auditor;
    • The responsibilities of management;
    • Identification of the applicable financial reporting framework for the preparation of the financial statements; and
    • Reference to the expected form and content of any reports to be issued by the auditor and a statement that there may be circumstances in which a report may differ from its expected form and content.
  • If above components of engagement letter in law and regulation, engagement letter not necessary.
  • On recurring audit assess the change in circumstances and need to revise engagement letter.
  • There must be reasonable justification for change in engagement letter, after it has been agreed.
  • If change not agreeable with management, Withdraw and consider the legal or contractual obligation.

 Financial Reporting Standards Supplemented by Law or Regulation 

  • Auditor consider the conflict between law and standards;
    • Additional disclosure or
    • change description of applicable financial reporting framework

Financial Reporting Framework Prescribed by Law or Regulation—Other Matters Affecting Acceptance

  • Financial reporting frame unacceptable but required by lawaccept engagement if;
    • Management agree to provide additional disclosures
    • Add emphasis of matter paragraph in audit report.
    • Don’t add true and fair like statement unless required and allowed by law.
  • If above conditions are not meet and audit required by law, evaluate effect of misleading information and include reference to that in the engagement letter.

Auditor’s Report Prescribed by Law or Regulation

In some cases law prescribe wording of audit report, auditor shall consider whether users might misunderstand the assurance obtained, if so then Whether additional explanation in the auditor’s report can mitigate possible misunderstanding. If cannot be mitigated don’t accept audit engagement unless required by law.

An audit conducted in accordance with such law or regulation does not comply with ISAs. Accordingly, the auditor shall not include any reference within the auditor’s report to the audit having been conducted in accordance with ISAs.