Agreeing the Terms of

Audit Engagements
PSA 210

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Classified - Internal use

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PSA 210 Agreeing the terms of an audit

engagement
Deals with the auditors responsibilities in agreeing the terms of
the audit engagement with:
management and,
where appropriate, TCWG.

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Classified - Internal use

Objective of the Auditor

To accept or continue an audit engagement only when the basis of
audit engagement has been agreed, through:
Establishing preconditions for an audit; and
Confirming common understanding between the auditor and
management and, where appropriate, TCWG on the terms of the audit
engagement.

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Requirements of the Standards

Preconditions for an Audit

Agreement on Audit Engagement Terms

Recurring Audits
Acceptance of a Change in the Terms of the Audit Engagement
Additional Considerations in Engagement Acceptance

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Preconditions for an Audit

The auditor shall establish the presence of the preconditions for
an audit by:
Determining acceptable FINANCIAL REPORTING FRAMEWORK
[suitable criteria (CR RUN) and available to intended user] applied to
Financial Statements; and
Obtaining the agreement of management regarding its responsibility
and, where appropriate, TCWG to the premise on which an audit is
conducted.

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Managements Responsibilities
Preparation and presentation of the FSs

Design, implementation and monitoring of internal control to

FSs
Provide the auditor with:

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Access to all information relevant to audit

Additional information the auditor may request
Unrestricted access to persons within the entity

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Limitation on Scope Prior to Audit

Engagement Acceptance
The auditor shall not accept an audit engagement, if:
Management (or TCWG) imposes a limitation on the scope of work that
will result to disclaimer of opinion
Unless required by law or regulation to do so

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Other Factors Affecting Audit Engagement

Acceptance
If the preconditions for an audit are not present, such as:
The FRF applied is unacceptable; or
The agreement with management has not been obtained.

Discuss the matter with management

If not resolved,
Should not accept the engagement (unless required by law or regulation)

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Agreement on Audit Engagement Terms

Recorded in an audit engagement letter (or other suitable form)
Sent by the auditor before the commencement of the audit to
avoid misunderstandings with respect to the audit.

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Form and Content of the Audit Engagement

Letter
Engagement letter primarily includes:

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The objective and scope of the audit;

The responsibilities of the auditor;
The responsibilities of management;
Identification of the applicable FRF; and
Reference to form and content of audit reports and statement regarding
deviation from form and content, in certain circumstances.

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Additional Form and Content of the Audit

Engagement Letter
Engagement letter may additionally include:

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Elaboration of the scope of the audit

The form of any other communication of results of the audit
Audit inherent limitations and internal control
Planning and performance of the audit, including the composition of
the audit team
Written representations from management
Draft FSs from management
Audit fees, including computation and billing
Acknowledgement from management
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Additional Form and Content of the Audit

Engagement Letter (Contd)
Engagement letter may additionally include:

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Involvement of other auditors and experts

Involvement of internal auditors and other staff
Arrangements with the predecessor auditor
Any restriction of the auditors liability
Further agreements between the auditor and the entity
Any obligations to provide audit working papers to other parties

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Audits of Components
When the auditor of a parent entity is also the auditor of a
component, the following factors are considered whether to send
a separate engagement letter to the component be made:

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Who appoints the component auditor;

Whether a separate auditors report is to be issued on the component;
Legal requirements in relation to audit appointments;
Degree of ownership by parent; and
Degree of independence of the component management from the
parent entity.

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Recurring Audits
Assess whether circumstances require:
the terms of the audit engagement to be revised; and
a need to remind the entity of the existing terms of the
engagement.

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Recurring Audits
New engagement letter may not be sent. However, consider the
following factors:

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Misunderstanding of the objective and scope

Any revised or special terms
A recent change of senior management
A significant change in ownership
A significant change in entitys nature or size
A change in legal or regulatory requirements
A change in the FRF
A change in other reporting requirements
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Acceptance of a Change in the Terms of the

Audit Engagement
Shall not agree to a change without reasonable justification.
If changed to a lower level of assurance, determine if there is
reasonable justification.

If the change is justified, record the new terms. The new report
should not include reference to:
The original audit engagement
Any procedures performed in the audit engagement, except if changed to an
agreed-upon procedures
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Acceptance of a Change in the Terms of the

Audit Engagement
If unable to agree and is not permitted to continue the original
audit engagement:
Withdraw from the audit engagement (unless required by law or
regulation); and
Determine whether there is any obligation to report to other parties,
such as TCWG, owners or regulators.

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Supplement by Law or Regulation to

Financial Reporting Standards
Determine if there are any conflicts. If conflicts exist, discuss
with management the nature of the additional requirements
and agree whether if:
can be met through additional disclosures; or
the description of the applicable FRF in the FSs can be amended.

Otherwise, determine if necessary to modify the auditors

opinion.

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FRF Prescribed by Law or Regulation

Accept audit engagement even though FRF is unacceptable only
if the following conditions are present:
additional disclosures be made to avoid being misleading; and
recognized in the terms of engagement that:
auditors report includes an EOM; and
auditors opinion will not include present fairly, in all material
respects in accordance with the applicable FRF.

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FRF Prescribed by Law or Regulation (Contd)

If the conditions are not present and the auditor is required by
law or regulation to undertake the audit engagement:
evaluate the effect of the misleading nature of the FSs on the auditors
report; and
include appropriate reference to this matter in the terms of the audit
engagement.

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Auditors Report Prescribed by Law or Regulation

If significantly different from PSAs, evaluate whether:
users might misunderstand the assurance provided; and
additional explanation can mitigate possible misunderstanding.

If cannot mitigate possible misunderstanding, dont not accept

the audit engagement (unless required by law or regulation).
An audit conducted shall be said as not in compliance with
PSAs and make no reference within the auditors report.
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Slide reference:
PSA 210

PRTC by Leomar R. Cabarles

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Questions?

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