ISA 210 AGREEING THE TERMS OF

AUDIT ENGAGEMENTS

Source: Collings, Stevens. 2011

IAPI. 2013
ISA 210 AGREEING THE
TERMS OF AUDIT
ENGAGEMENTS
 Dealing with auditor’s responsibilities in
agreeing the terms of the audit engagement
with management and, where appropriate,
those charged with governance (TCWG)
ISA 210 AGREEING THE TERMS
OF AUDIT ENGAGEMENTS (CONT.)
Auditor objectives is to decide whether to accept a
new client or continue serving an exiting one only
when the basis upon the audit has been agreed,
through:
1. Establish whether the preconditions for an
audit are present
2. Confirm that there is a common understanding
between the auditor & management of terms of
the audit engagement.
3. Tuanakotta (2013) also emphasizes about the
existence of scope limitation.
ISA 210 AGREEING THE
TERMS OF AUDIT
ENGAGEMENTS (CONT.)
Preconditions are the use of an acceptable
financial reporting framework by management in
the preparation of the entity’s financial
statements and the agreement by management
and, where applicable, TCWG on the premise of
the audit to be conducted.
ISA 210 AGREEING THE TERMS OF
AUDIT ENGAGEMENTS (LANJUTAN)
Prakondisi adalah penggunaan suatu kerangka
pelaporan keuangan yang dapat diterima dalam
penyusunan laporan keuangan oleh manajemen
dan persetujuan manajemen dan, jika relevan,
pihak yang bertanggung jawab terhadap tata
kelola atas premis-premis pelaksanaan suatu
audit.
ISA 210 AGREEING THE
TERMS OF AUDIT
ENGAGEMENTS (CONT.)
In determining whether the preconditions are met,
the auditor must:
1. conclude whether the financial reporting
framework used by management in the
preparation of the entity’s financial statements
is acceptable
ISA 210 AGREEING THE TERMS
OF AUDIT ENGAGEMENTS (CONT.)
2. obtaining confirmation from management
that they acknowlegde their
responsibilities for:
a) the preparation of the FS in accordance
with the relevant reporting framework
including, where applicable, their fair
presentation.
b) Management must also acknowledge
their responsibilities for internal controls
insofar as ensuring that such controls will
enable the FS to be free from material
misstatement, whether due to fraud or
error
ISA 210 AGREEING THE
TERMS OF AUDIT
ENGAGEMENTS (CONT.)
b) Management must also ensure that they
provide the auditor with:
 Access to all information that management is
aware of which is relevant to the preparation of
the FS
 Any other information which the auditor may
request for the purposes of the audit
 Unrestricted access to persons within the entity
who will provide the auditor with relevant
audit evidence.
ISA 210 AGREEING THE
TERMS OF AUDIT
ENGAGEMENTS (CONT.)
Limitation on the Scope Prior to the Audit
Engagement Acceptance
Par 7. in circumstances where management
imposes a limitation on the auditor’s work in
terms of the proposed engagement, and the
auditor conclude that such a limitation on scope
will result in the audit opinion being disclaimed,
than the auditor must not accept such an
engagement unless the auditor is specifically
required to do so, for example, because of laws or
regulations.
ISA 210 AGREEING THE
TERMS OF AUDIT
ENGAGEMENTS (CONT.)
Par 8. where other conditions prohibit the
precondition of an audit being met, then the
auditor must discuss the issue with management
and, where applicable, TCWG. The auditor shall
not accept such an engagement where the auditor
concludes that the financial reporting framework
which is to be applied in the preparation of the
FS is unacceptable or if the auditor is not in
possesion of management’s agreement to their
responsibilities.
ISA 210 AGREEING THE TERMS
OF AUDIT ENGAGEMENTS (CONT.)
In many cases the preconditions of an audit can be met
and in such cases then the auditor must agree the
terms of the audit engagement with management
and, where applicable, TCWG. This agreement is
usually outlined by way of a letter of engagement and
will normally comprise:
a) The objective & the scope of the audit
b) The auditor’s responsibilities
c) The responsibilities of management
d) Identification of the financial reporting framework
for the preparation of the FS
e) Reference to the expected form & content of any
reports to be issued by the auditor & a statement
that there might be circumstances in which a report
may differ from its expected form & content
ISA 210 AGREEING THE
TERMS OF AUDIT
ENGAGEMENTS (CONT.)
 It is in the interest of both the auditor and the
client that the auditor sends an audit
engagement letter before the commencement of
the audit to avoid misunderstandings with
regard to the audit.
 In many cases audits will be recurring. When
recurring audit are concerned revisions to the
existing letter of engagement may be required
and/or reminders to management.
ISA 210 AGREEING THE TERMS
OF AUDIT ENGAGEMENTS (CONT.)
 The auditor should not agree to a charge in the
engagement terms if there is no reasonable
justification for doing so.
 If the term of the engagement are changed, then
the auditor and management must agree on and
rerecord the revised term of the engagement in a
subsequent engagement letter or other suitable
form of written agreement.