ISA 210 – Objective:
The objective of the auditor is to accept or continue an audit engagement only when the basis upon which it is to be performed has been agreed, through:
- Establishing whether the preconditions for an audit are present; and
- Confirming that there is a common understanding between the auditor and management and, where appropriate, those charged with governance of the terms of the audit engagement.
ISA 210 – Preconditions of an Audit:
In order to establish whether the preconditions for an audit are present, the auditor shall:
- Determine whether the financial reporting framework to be applied in the preparation of the financial statements is acceptable; and
- Obtain the agreement of management that it acknowledges and understands its responsibility:
i. For the preparation of the financial statements in accordance with the applicable financial reporting framework, including where relevant their fair presentation;
ii. to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error; and
iii. To provide the auditor with:
- Access to all information of which management is aware that is relevant to the preparation of the financial statements such as records, documentation and other matters;
- Additional information that the auditor may request from management for the purpose of the audit; and
- Unrestricted access to persons within the entity from whom the auditor determines it necessary to obtain audit evidence.
Limitation on Scope Prior to Audit Engagement Acceptance:
If management or those charged with governance impose a limitation on the scope of the auditor’s work in the terms of a proposed audit engagement such that the auditor believes the limitation will result in the auditor disclaiming an opinion on the financial statements, the auditor shall not accept such a limited engagement as an audit engagement, unless required by law or regulation to do so.
Other Factors Affecting Audit Engagement Acceptance:
If the preconditions for an audit are not present, the auditor shall discuss the matter with management. Unless required by law or regulation to do so, the auditor shall not accept the proposed audit engagement:
- If the auditor has determined that the financial reporting framework to be applied in the preparation of the financial statements is unacceptable, except as provided in additional considerations provided in paragraph 19; or
- If the agreement referred to in paragraph 6(b) has not been obtained.
ISA 210 – Agreement on Audit Engagement Terms:
- The auditor shall agree the terms of the audit engagement with management or those charged with governance, as appropriate.
- Subject to paragraph 11, the agreed terms of the audit engagement shall be recorded in an audit engagement letter or other suitable form of written agreement and shall include:
a. The objective and scope of the audit of the financial statements;
b. The responsibilities of the auditor;
c. The responsibilities of management;
d. Identification of the applicable financial reporting framework for the preparation of the financial statements; and
e. 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 law or regulation prescribes in sufficient detail the terms of the audit engagement referred to in paragraph 10, the auditor need not record them in a written agreement, except for the fact that such law or regulation applies and that management acknowledges and understands its responsibilities as set out in paragraph 6(b).
- If law or regulation prescribes responsibilities of management similar to those described in paragraph 6(b), the auditor may determine that the law or regulation includes responsibilities that, in the auditor’s judgment, are equivalent in effect to those set out in that paragraph. For such responsibilities that are equivalent, the auditor may use the wording of the law or regulation to describe them in the written agreement. For those responsibilities that are not prescribed by law or regulation such that their effect is equivalent, the written agreement shall use the description in paragraph 6(b).