ISA 210 Flashcards
(54 cards)
What is the title of ISA 210?
International Standards on Auditing 210 Agreeing the Terms of Audit Engagements
What are the Preconditions of Audit?
- AFRF is acceptable
- Management (and TCWG where applicable) agrees to the premise on which an audit is conducted
How does auditor establish whether preconditions of audit are present?
Determine whether AFRF is acceptable by considering
- legal requirements
- nature of entity
- nature of financial statements
- purpose of financial statements
Obtain an agreement from management (via engagement letter) that it understands and acknowledges its responsibilities:
- for preparation and presentation of F/s
- for such internal control which management and TCWG determine necessary for the preparation of f/s that are free from material misstatement
- to provide auditor with all relevant information, additional information, unrestricted access to personnel
What would be the course of action if Preconditions for audit not present?
Discuss necessity of preconditions with management
What would be the course of action if management does not agree to premise on which audit is conducted?
Do not accept engagement
What would be the course of action if AFRF not acceptable?
Do not accept engagement
What if AFRF is not acceptable but auditor is required by law to accept engagement?
F/s are misleading.
Accept engagement if following conditions met:
- Management provides additional disclosures to avoid F/s being misleading and it is stated in terms of engagement that Auditor Report shall include EOM paragraph to draw users’ attention to additional disclosures
- It is stated in terms of engagement that Auditor’s opinion shall not include phrases “True and Fair view” or “presented fairly in all material respects” unless phrases required by law
What if AFRF is unacceptable, engagement is required to be accepted by law, and the conditions aren’t met?
Auditor shall
- Evaluate effect of misleading F/s on Audit report
- Include reference of this matter in terms of engagement
What would be the course of action if there is scope limitation before acceptance?
Scope limitation by management, whose effect is pervasive –> Do not accept audit engagement unless required by law
What are the necessary terms of an audit engagement to be agreed in engagement letter?
Auditor shall agree following terms with management and TCWG
- Objective & scope of Audit (ISA 200)
- Responsibilities of Auditor (ISA 200)
- Responsibilities of Management (ISA 200)
- Identification of AFRF (ISA 200)
- Reference to expected form and content of any reports to be issued by auditor
- A statement that there may be circumstances in which a report may differ from its expected form and content
If law or regulation prescribes terms of engagement in sufficient details, does auditor need to include them in engagement letter
No.
He may state that such law or regulation applies.
However management’s responsibilities shall be included in engagement letter (same wordings may be used as specified by law if effect is equivalent)
What are some terms that MAY be included in engagement letter?
Open standard
What are the terms that shall be included in engagement letter WHEN RELEVANT?
Open standard
In recurring audit, is auditor required to send a new engagement letter?
No
In recurring audit, if there’s a change in circumstances, is an auditor required to send new engagement letter? If so, Why?
Yes, to revise or remind management of existing terms of engagement
What are some examples of change in circumstances, where auditor should send new engagement letter to management on recurring audit?
Open standard
If auditor of parent entity is also auditor of component, shall auditor send a separate engagement letter to the component?
Depends on factors
If auditor of parent entity is also auditor of component, what factors are used in determining whether a separate engagement letter is to be sent to component?
- Legal requirements
- Who appoints auditor of component
- Whether a separate report is to be issued
- Degree of independence of component management
- Degree of ownership by parent
What to do if management requests change in terms of engagement?
Determine whether there is a reasonable justification, if there is, agree revised terms of engagement
What would be course of action if management requests to change audit engagement to review or related services?
- Consider whether there is a “reasonable justification”
- Consider whether there are any legal or contractual implications
What are examples of reasonable and unreasonable justifications for change in terms of engagement
Following MAY be reasonable justifications:
- Change in circumstances affecting need for service
- Misunderstanding of the service
Following MAY be unreasonable justifications
- change relates to information that is incorrect, incomplete or otherwise unsatisfactory
What would be course of action if management requests to change audit engagement to review or related services, and there IS a reasonable justification?
- Procedures to be performed and Report to be issued shall be according to revised engagement (work already performed may be relevant)
- Report shall NOT refer to original audit engagement or any procedures performed in original audit engagement (except agreed-upon procedures)
What would be course of action if management requests to change audit engagement to review or related services, and there is NOT a reasonable justification?
- Auditor shall continue to perform engagement as per original terms
- If management does not permit auditor to continue original engagement, it will be scope limitation whose effect is pervasive.
- Auditor shall withdraw from engagement
- Auditor shall consider whether there is any obligation to report to TCWG, owners or regulators.
- If withdrawal is not possible and practicable, auditor shall express Disclaimer of Opinion on F/s
If local laws or regulations supplement Financial Reporting Standards, what shall management do?
Comply with both, unless in conflict
