ISA 210: Agreeing the Terms of Audit Engagement Flashcards
Preconditions (2+3)
- Establish that FRF are acceptable.
- Obtain premise of mgmt that they understand/acknowledge their responsibility:
(a) for prep of F/S
(b) for internal controls (to ensure no material misstatement in F/S)
(c) to provide auditor with relevant and requested info + unrestricted access to all personnel.
What should an auditor do if the preconditions are NOT MET? (5)
Should not accept proposed audit (unless required by law):
- if FRF is unacceptable
- limitation of scope is imposed by management
- Management do not agree to premise
AND
- Discuss the matter with management
- Explain > 1 of the purpose of preconditions> avoid misunderstanding abt respective responsibilities.
Principal elements of audit engagement letter. (MAIN) (5)
- Objective and scope of audit.
- Responsibilities of auditor.
- Responsibilities of management.
- Identification of underlying FRF.
- Reference to expected form and content of any reports to be issued.
ADDITIONAL elements of audit engagement letter. (5+4)
- Fact that inherent limitation of audit and internal controls are unavoidable.
- Arrangements of planning and performance of audit.
- Expectation from mgmt of:
- written representations
- access to relevant info
- making available draft F/S to auditor
- inform auditor about events occurring after Auditors report - Basis on which fees are computed + any billing arrangements
- Any obligations to provide audit working papers to other parties
What does auditor need to assess for recurring audit (2)
- Circumstances requiring revision in terms of engagement.
- Mgmt need to be reminded of existing terms of engagement.
Appropriate factors indicating need for change in terms (5+2+3)
- Indication that entity misunderstands current objective and scope of audit.
- Revised/special terms of the audit engagement.
- Recent change in senior mgmt.
- Significant change in:
- ownership
- nature or size of entity’s business. - change in:
- legal/regulatory reqs
- frf adopted
- other reporting reqs
Reasons for an entity to ask for change in terms of engagement? (3)
Entity might ask the change due to:
- genuine change in circumstances
- misunderstanding as to the nature of audit originally requested
- any limitation of scope from mgmt
Auditors response to entity’s request of change in terms of engagement. (3+2)
- consider justification and reasonableness of request.
- If reasonable => terms agreed and records
- If unable to agree change in terms:
- withdraw from eng
- considers if there is obligation to report this to TCWG