Audit Engagement Letter (ISA-210)

 The auditor's goal is to accept or continue an audit engagement only after the basis on which it will be performed has been agreed upon, which includes:

(a) determining whether the preconditions for an audit are present; and

(b) confirming that the terms of the audit engagement are understood by the auditor, management, and, where appropriate, those charged with governance.

Management or those in charge of governance, as applicable, must agree to the parameters of the audit engagement. The following items must be included in an audit engagement letter or another suitable form of a written agreement:

(a) the objective and scope of the financial statement audit;

(b) the auditor's responsibilities;

(c) management's responsibilities;

(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 an audit report

(f) a statement that a report's form and substance may deviate from what is expected in certain instances.

Except for the fact that such law or regulation applies and management acknowledges and understands its responsibilities, the auditor does not need to record the terms of the audit engagement referred to above in a written agreement if the terms of the audit engagement referred to above are prescribed in sufficient detail by law or regulation. On recurring audits, the auditor must determine if the terms of the audit engagement need to be updated and whether the business needs to be reminded of the existing audit engagement terms.

If there is no reasonable justification, the auditor will not consent to a change in the terms of the audit engagement. If the auditor is asked to convert the audit engagement to one that provides a lower level of assurance before it is completed, the auditor must consider whether there is a reasonable rationale for doing so.

If the audit engagement's conditions change, the auditor and management must agree on and document the new terms in an engagement letter or other suitable form of a written agreement. If the auditor is unable to agree to a change in the audit engagement terms and is not permitted by management to continue the original audit engagement, the auditor shall:

(a) Withdraw from the audit engagement where possible under applicable law or regulation; and 

(b) Determine whether there is any contractual or other obligation to report the circumstances to other parties, such as those charged with governance, owners, or regulators.

 

Practice:

It is in both the entity's and the auditor's best interests to minimize misunderstandings about the audit. The auditor, thus, should issue an audit engagement letter before the start of the audit.

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