PSA 210 AGREEING THE TERMS OF AUDIT ENGAGEMENTS

o Requirements
o In order to establish whether the preconditions for an audit are present, the auditor shall:
 Determine whether the financial reporting framework to be applied in the
preparation of the financial statements is acceptable
 Obtain the agreement of management that it acknowledges and understands its
responsibility:
 For the preparation of the financial statements in accordance with the
applicable financial reporting framework including relevant fair
presentation
o Factors that are relevant to the determination of the acceptability
of the financial reporting framework include:
 The nature of the entity
 Purpose of the financial statements
 Nature of the financial statements
 Whether law or regulation prescribes the applicable
financial reporting framework
 Management determines is necessary to enable the preparation of FS that
are free from material misstatement due to fraud or error
 To provide the auditor with access to all information relevant to
preparation of FS, additional information that the auditor may request
from management, un restricted access to person within the entity to
obtain audit evidence
 Limitation on scope prior to audit engagement acceptance
 If management impose a limitation on the scope of the auditor’s work such that
the auditor believes the limitation will result in disclaiming an opinion, the
auditor shall not accept such audit engagement unless required by law to do so
 Other factors affecting audit engagement acceptance
 If financial reporting framework applies in the financial statements are
unacceptable
 Agreement with the management was not obtained
o Agreement on audit engagement terms
o INCLUSIONS
 Objective and scope of the audit of the FS
 Responsibilities of the auditor
 Responsibilities of the management
 Identification of applicable financial reporting framework
 Reference to the expected form and content of any reports to be issued by the
auditor and a statement that may be circumstances in which a report may differ
from its expected form and content
 If law or regulation prescribes insufficient detail the terms of the audit engagement
referred to, the auditor need not record them in a written agreement, except for the
fact that law or such regulation applies and the management acknowledges and
understands its responsibilities
 If law or regulation prescribes responsibilities of management the auditor may
determine that the law or regulation includes responsibilities of management that
 are equivalent, the auditor may use the wording of the law describe in the written
agreement. For those responsibilities that are not prescribed by law , the auditor
shall use the description (responsibilities of management)

o Recurring Audits
o The auditor shall assess whether circumstances require the terms of the audit engagement
to be revised or whether there is a need to remind the entity of the existing terms.
o Acceptance of a change in the terms of the audit engagement
 Do not agree to a change when there is no reasonable justification
 If prior to completion of audit engagement the auditor is requested to change the audit to
low level assurance, the auditor shall determine whether there is reasonable justification
for doing so
 if audit engagement is changed, auditor and mgt shall agree on and record the new terms
 if auditor is unable to agree to change of terms the auditor: (a) shall withdraw from the
audit engagement, (b) determine whether there is any obligation, either contractual or
report the circumstances to other parties.
o Additional considerations in engagement acceptance
 if financial reporting standards are supplemented by law or regulation, the auditor
shall determine whether there are any conflicts between the financial reporting
standards and the additional requirements. If such conflict exists. The auditor and
mgt shall agree whether: (a)the additional requirements can be met through
additional disclosures in the FS or (b) the description of the applicable financial
reporting framework in the FS can be amended accordingly.
 If neither of a and b is possible, the auditor shall determine if it is ossible to
modify the audit opinion.
General purpose frameworks : examples of financial reporting standards
 IFRSs by the IASB
 PFRSs by the financial reporting standard council
 International public sector accounting standards by the IPSASB
 Accounting principles promulgated by an authorized or recognized standards
setting organization

Internal control

 Can provide an entity with only reasonable assurance about achieving the entity’s
financial reporting objectives due to the internal limitations of internal control
 An independent audit cannot act as substitute for internal control
Form and content of the audit engagement

 Elaboration of the scope of the audit

 Form of any other communication of results of the audit
 Fact that because of the inherent limitations of an audit, together with the inherent limitations of
internal control, there is an unavoidable risk that some material misstatements may not be
detected, even though the audit is properly planned and performed in accordance with PSAs
 Arrangements regarding the planning and performance of the audit, including the composition of
the audit team
 Expectation that management will provide written representations
 Agreement of management to make available to the auditor draft of FS and any accompanying
other information in time to allow the auditor to complete the audit in accordance with the
proposed timetable
 Agreement of management to inform the auditor facts that may affect the FS
 Basis on which fees are computed and any biliing arrange,emts
