SA 210 deals with the Auditor’s responsibility in Agreeing to the Terms of Audit Engagement with Those Charged with Governance and Management.
SA 210- The Objective
The objective of SA 210 is to accept or continue an audit engagement only when the basis upon which is to perform has been agreed, through –
- Establishing whether the preconditions for the audit is present; and
- Confirming that there is a common understanding between the auditor and Management or those charged with Governance in the terms of the audit engagement.
What is Engagement Letter?
It is a letter written by an auditor and given to the client setting the scope of audit as well as preconditions of the audit which is required to accept by the client. This letter shows the detailed terms and conditions of audit agreed between the auditor and management.
CA Intermediate Dec 2021 Topper’s Interviews
Pre Conditions for an Audit
SA 210 establish the prerequisite for an audit, the auditor shall before the commencement of an audit :
- The auditor shall determine whether the FRF (Financial Reporting Framework) to be applied in the preparation of Financial Statements is acceptable.
- The agreement from the Management or Those Charged with Government wherever appropriate that it understands its responsibility.
Management Responsibility in respect of an Audit –
- They are responsible for the preparation of the Financial Statements in accordance with the applicable FRF and their fair presentation.
- Management is also responsible for the maintenance of Books of Accounts.
- Implementation of the proper Internal Controls which are deemed necessary to prepare the Financial Statements free from material misstatement whether due to fraud or error.
Limitations on the Scope of Audit –
Where the Management or TCWG is trying to limit the scope of Audit, which will result ininhe disclaiming opinion before acceptance of audit then it should not be accepted by auditor unless required by Law.
Engagement Letter Includes –
- Audit Engagement Letter includes objective and scope of the Audit of Financial Statements.
- Auditor’s as well as Management Responsibility.
- Applicable FRF should be identified while preparing the Financial Statements.
The auditor must assess the changes in circumstances which require the engagement letter to be revised.
The auditor is required to send the engagement letter in the below mention circumstances –
- Change in the Ownership.
- Change in the Senior Management.
- Change in Laws and Regulations.
- When there is a change in Reporting Requirements.
Changes in Engagement Letter
The auditor should not make any change in the Engagement letter until and unless there is a reasonable justification for doing so.
In case the changes are not agreeable to the management, withdraw and consider the legal and contractual obligations.
Meaning of Those Charged with Governance
TCWG are those persons who used to describe the role of the person relating to planning, directing, supervision and controlling. These people are responsible along with the management for the achievement of organization objectives and Financial Reporting.
In basic terms, TCWG is the Top level Management or the Board of Directors.
So, It was all about SA 210, You may also like to read, How to Study Audit and Assurance for CA IPCC!