This is the summary of ISA 210: Agreeing with the Term of Audit Engagement. In this summary, we follow the structure of ISA which is starting from Introduction, Objective, Definition, and Requirement.
You may jump to the specific areas as your requirement. The summary here does not include all the points in standard and it 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 to audit firms respond to the requests on changing the term and condition.
This standard provides as the basis and guidance when it is preparing to bind agreement with its client for both audit and non-audit services like tax service, accounting review, as well as advisory services.
However, once such non-audit services exist, the standard recommended having a separate engagement letter.
The formal engagement letter is recommended in any situation, term and diction should be clear and understandable from both parties.
The main objective of ISA 210 is said that audit could perform its works only when the term and conditions of the engagement are agreed upon. In that case, the term and conditions are present and agreed by both parties, if possible from those charges with the government.
To simplify on this point, the auditor should accept or continues its works 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 importance point 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 agreed with management about their responsibilities on the preparation of Financial Statements and Internal Control on Financial Reporting.
- Confirm with management about auditor right to access information, and 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 affect 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 with management in the application form. For example, contract or engagement letter. The importance of information including Scope, Objective, Responsibility of both parties, financial framework, and the report that going to issue by the auditor. Audit Fee 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 continuing audit of the current client. Before continuing the standard require the firm to reassess if there is anything need 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 the Terms of the Audit Engagement
- During the audit, the client might be asking for changing the term and condition. In such a case, the auditor needs to consider when the change is acceptable or not.
- If the change is not acceptable, the auditor should not continue engagement. If it is accepted, the new agreement should be formed. All applicable law and ethics should be considered.
Additional Considerations in Engagement Acceptance
- In some jurisdiction, the financial reporting standard is supplement 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 standard. If not, the auditor should consider if the modified option is required.
Summary by Sinra