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SA 210 deals with the key considerations that Independent Auditor needs to keep in mind on the terms of the Audit engagement with Management or ‘Those charged with Governance’.
This Revised Standard on Auditing (SA 210) deals with the auditor’s responsibilities in agreeing to the terms of the audit engagement with management. SA 210 establishes the preconditions for an audit, terms of an audit engagement and changes thereof, segregates the responsibility of the management and auditors etc.
Auditor’s Objective is to accept or continue an audit engagement only when the basis upon which it is to be performed has been agreed, through
1. Ensuring if the Preconditions for an audit are present
2. Confirming if there is a common understanding between auditor and management
The use by management of an acceptable financial reporting framework in the preparation of the financial statements and the agreement of management and, where appropriate, those charged with governance to the premise on which an audit is conducted.
For the purposes of this SA, references to “management” should be read hereafter as “management and, where appropriate, those charged with governance”.
If the preconditions for an audit are not present and the auditor after the discussion with the management is not in acceptance then auditor shall not accept the proposed audit engagement unless required by law or regulation to do so.
Auditor shall not accept an audit engagement if the management imposes any limitation on the scope which will result in the auditor disclaiming an opinion on the financial statements, unless required by law or regulation to do so.
Listed below are the requirements for an Audit Engagement terms:
In case of recurring audits, the audit should assess if there is any requirement for revision of the audit engagement terms and wherever required remind the entity of existing terms.
Following are the requirements to be adhered to by the auditor if there are any changes to the ongoing audit engagements (eg) Significant change in ownership or nature of entity’s business:
A. In the event of any conflicts between financial reporting standards (established by an authorized or recognized standards-setting organization) and the supplementing law or regulation, the auditor shall discuss with management and agree whether:
B. If neither of the above actions is possible, the auditor should determine whether it will be necessary to modify the auditor’s opinion in accordance with SA 705. B. If the auditor is of the opinion that the financial reporting framework prescribed by the law or regulation is unacceptable, then the auditor can accept the audit engagement only if:
C. If the conditions stated for the financial reporting framework are not present and the auditor is required to take the engagement by law or regulation, then:
D. Where applicable law or regulation prescribes the layout or wording of the auditor’s report in a form or in significantly different terms from SA requirements, then the auditor should evaluate:
If the auditor is of opinion that additional explanation cannot mitigate the misunderstanding, then auditor cannot accept the engagement unless required by law or regulation.
Effective Date: SA 210 is applicable for audits of financial statements for the period beginning on or after April 1, 2010.