(a) ISA 210 Agreeing the Terms of Audit Engagements provides guidance to auditors on the steps they should take in accepting a new audit or continuing on an existing audit engagement. It sets out a number of processes that the auditor should perform including agreeing whether the preconditions are present, agreement of audit terms in an engagement letter, recurring audits and changes in engagement terms.
To assess whether the preconditions for an audit are present the auditor must determine whether the financial reporting framework to be applied in the preparation of the financial statements is acceptable. In considering this the auditor should assess the nature of the entity, the nature and purpose of the financial statements and whether law or regulations prescribes the applicable reporting framework.
In addition they must obtain the agreement of management that it acknowledges and understands its responsibility for the following:
Preparation of the financial statements in accordance with the applicable financial reporting framework, including where relevant their fair presentation;
For such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error; and
To provide the auditor with access to all relevant information for the preparation of the financial statements, any additional information that the auditor may request from management and unrestricted access to persons within the entity from whom the auditor determines it necessary to obtain audit evidence.
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; or
– If management agreement of their responsibilities has not been obtained.
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