This is the summary of ISA 210: Agreeing with the Term of Audit Engagement. In this summary, we follow the structure of ISA which starts with an Introduction, Objective, Definition, and Requirement.
You may jump to the specific areas as your requirement. The summary here does not include all the standard points and is for quick check only. The full standard is recommended for professional practices.
The Main Purposes of ISA 210 are to:
- Provide the standard and guidance on how the audit firm agree with the term of engagement with its clients
- Provide the standard and guidance on how audit firms respond to requests on changing the term and conditions.
This standard provides the basis and guidance when it is preparing to bind an agreement with its client for audit and non-audit services like tax service, accounting review, and advisory services.
However, once such non-audit services exist, the standard recommends having a separate engagement letter.
The formal engagement letter is recommended in any situation, term and diction should be clear and understandable for both parties.
The main objective of ISA 210 is said that audit could perform its work only when the term and conditions of the engagement are agreed upon. In that case, the term and conditions are present and agreed upon by both parties, if possible from those charges with the government.
To simplify this point, the auditor should accept or continues its work when there is no evidence that management does not agree with the term and conditions.
The following is the definition of the key term in ISA 210:
Precondition for an audit is the condition in which auditor could establish that the Financial Statements that auditor going to audit are preparing in accordance with applicable standard and, the understanding and agreeing rule and responsibilities on management as well as those charge with governments on Financial Statements.
The following are the requirement for five important points in ISA 210:
Preconditions for an Audit
- Determine if the frameworks to be used are acceptable and if the framework to be used is not acceptable, then the auditor should not accept the engagement.
- Confirm and agree with management about their responsibilities in preparing Financial Statements and Internal controls on Financial Reporting.
- Confirm with management about the auditor’s right to access information; if management does not agree, engagement should not accept.
- Confirm the scope of the audit and if the limitation is imposed. Access if the impose affects the audit words for its opinion.
- The auditor might not accept the engagement if the precondition is not discussed.
Agreement on Audit Engagement Terms
- The term and conditions should be included and agreed upon with management in the application form. For example, a contract or engagement letter. The importance of information includes Scope, Objective, Responsibility of both parties, financial framework, and the report that is going to issue by the auditor. Audit Fees and the basis of audit fee calculation should be included.
- Law and regulation related to audit engagement might need to consider.
- A recurring audit happens when the firm continues the audit of the current client. Before continuing the standard, the firm must reassess if there is anything that needs to change to the original engagement. ISA 210 requires a firm might need to inform management of the terms and conditions.
Acceptance of a Change in terms of the Audit Engagement
- The client might be asked to change the terms and conditions during the audit. In such a case, the auditor needs to consider whether or not the change is acceptable.
- If the change is not acceptable, the auditor should not continue engagement. If it is accepted, a new agreement should be formed. All applicable laws and ethics should be considered.
Additional Considerations in Engagement Acceptance
- In some jurisdictions, the financial reporting standard is supplemented by law and regulation, and in that case, ISA 210 requires the auditor to consider that the financial statements being reported are consistence with applicable financial reporting standards. If not, the auditor should consider if the modified option is required.
Summary by Sinra