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At.1307 - Terms of Engagements

This document outlines the requirements of PSA 210 regarding agreeing the terms of an audit engagement. It discusses establishing preconditions for an audit such as determining acceptable financial reporting frameworks and obtaining management's responsibilities. It also covers agreeing audit engagement terms in an engagement letter, factors to consider for recurring audits, and accepting changes to the terms of an audit engagement. The objective is for the auditor to only accept an audit engagement when the basis is agreed upon.

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Sheila Mae Plancia
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50 views

At.1307 - Terms of Engagements

This document outlines the requirements of PSA 210 regarding agreeing the terms of an audit engagement. It discusses establishing preconditions for an audit such as determining acceptable financial reporting frameworks and obtaining management's responsibilities. It also covers agreeing audit engagement terms in an engagement letter, factors to consider for recurring audits, and accepting changes to the terms of an audit engagement. The objective is for the auditor to only accept an audit engagement when the basis is agreed upon.

Uploaded by

Sheila Mae Plancia
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
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Agreeing the Terms of

Audit Engagements
(AT.1307)

Leomar R. Cabarles
Outline

• Relevant standard and its scope


• Objective of the auditor in agreeing the terms of
audit engagement
• Requirements of the Standard
• Establishment of preconditions for an audit
• Agreement on audit engagement terms
• Consideration for recurring audits
• Acceptance of a change in the terms

2
Relevant Standard and
Its Scope

3
Relevant Standard

• PSA 210 – Agreeing the terms of an audit


engagement

• Deals with the auditor’s responsibilities in agreeing


the terms of the audit engagement with:
• management and,
• where appropriate, TCWG.

4
Objective of the
Auditor

5
Objective of the Auditor

• To accept or continue an audit engagement only


when the basis of audit engagement has been
agreed, through:

• Establishing preconditions for an audit; and


• Confirming common understanding between
the auditor and management and, where
appropriate, TCWG on the terms of the audit
engagement.

6
Requirements of the
Standards

7
Requirements of the Standards

• Preconditions for an Audit


• Agreement on Audit Engagement Terms
• Recurring Audits
• Acceptance of a Change in the Terms of the Audit
Engagement

8
Requirements of the Standards

• Preconditions for an Audit


• Agreement on Audit Engagement Terms
• Recurring Audits
• Acceptance of a Change in the Terms of the Audit
Engagement

9
Preconditions for an Audit

• The auditor shall establish the presence of the


preconditions for an audit by:

• determining acceptable FRF (suitable criteria (CR


RUN) and available to intended user applied to
FSs; and

• obtaining the agreement of management


regarding its responsibility and, where
appropriate, TCWG to the premise on which an
audit is conducted.

10
Management’s Responsibilities

• Preparation and presentation of the FSs

• Design, implementation and monitoring of internal


control to FSs

• Provide the auditor with:

• Access to all information relevant to audit

• Additional information the auditor may request

• Unrestricted access to persons within the entity


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Limitation on Scope Prior to Audit
Engagement Acceptance
• The auditor shall not accept an audit engagement,
if:

• management (or TCWG) imposes a limitation on


the scope of work that will result to disclaimer of
opinion

• Unless required by law or regulation to do so

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Other Factors Affecting Audit
Engagement Acceptance
• If the preconditions for an audit are not present,
such as:

• The FRF applied is unacceptable; or


• The agreement with management has not been
obtained.

• Discuss the matter with management

• If not resolved,

• Should not accept the engagement (unless


required by law or regulation)
13
Requirements of the Standards

• Preconditions for an Audit


• Agreement on Audit Engagement Terms
• Recurring Audits
• Acceptance of a Change in the Terms of the Audit
Engagement

14
Agreement on Audit Engagement
Terms
• Recorded in an audit engagement letter (or other
suitable form)

• Sent by the auditor before the commencement of


the audit to avoid misunderstandings with respect
to the audit.

15
Form and Content of the Audit
Engagement Letter
• Engagement letter primarily includes (ARMOR):

• The objective and scope of the audit;


• The responsibilities of the auditor;
• The responsibilities of management;
• Identification of the applicable FRF; and
• Reference to form and content of audit reports
and statement regarding deviation from form and
content, in certain circumstances.

16
Additional Form and Content of the
Audit Engagement Letter
• Engagement letter may additionally include:
• Elaboration of the scope of the audit
• The form of any other communication of results
of the audit
• Audit inherent limitations and internal control
• Planning and performance of the audit, including
the composition of the audit team
• Written representations from management
• Draft FSs from management
• Audit fees, including computation and billing
• Acknowledgement from management

17
Additional Form and Content of the
Audit Engagement Letter (Cont’d)
• Engagement letter may additionally include:
• Involvement of other auditors and experts
• Involvement of internal auditors and other staff
• Arrangements with the predecessor auditor
• Any restriction of the auditor’s liability
• Further agreements between the auditor and the
entity
• Any obligations to provide audit working papers
to other parties

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Audits of Components

• When the auditor of a parent entity is also the


auditor of a component, the following factors are
considered whether to send a separate engagement
letter to the component:
• Who appoints the component auditor;
• Whether a separate auditor’s report is to be
issued on the component;
• Legal requirements in relation to audit
appointments;
• Degree of ownership by parent; and
• Degree of independence of the component
management from the parent entity.

19
Requirements of the Standards

• Preconditions for an Audit


• Agreement on Audit Engagement Terms
• Recurring Audits
• Acceptance of a Change in the Terms of the Audit
Engagement

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Recurring Audits

• Assess whether circumstances require:

• the terms of the audit engagement to be revised;


and
• a need to remind the entity of the existing terms
of the engagement.

21
Recurring Audits

• New engagement letter may not be sent. However,


consider the following factors:
• Misunderstanding of the objective and scope
• Any revised or special terms
• A recent change of senior management
• A significant change in ownership
• A significant change in entity’s nature or size
• A change in legal or regulatory requirements
• A change in the FRF
• A change in other reporting requirements

22
Requirements of the Standards

• Preconditions for an Audit


• Agreement on Audit Engagement Terms
• Recurring Audits
• Acceptance of a Change in the Terms of the Audit
Engagement

23
Acceptance of a Change in the Terms of the
Audit Engagement

Accept,
new
engagement
Justifiable letter

Change in
Reason
terms
Not
justifiable Don’t accept,
insist original
terms

24
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Acceptance of a Change in the Terms
of the Audit Engagement
• Shall not agree to a change without reasonable
justification.

• If changed to a lower level of assurance, determine


if there is reasonable justification.

• If the change is justified, record the new terms.


The new report should not include reference to:

• The original audit engagement


• Any procedures performed in the audit
engagement, except if changed to an agreed-
upon procedures
25
Acceptance of a Change in the Terms
of the Audit Engagement
• If unable to agree and is not permitted to continue
the original audit engagement:

• Withdraw from the audit engagement (unless


required by law or regulation); and

• Determine whether there is any obligation to


report to other parties, such as TCWG, owners or
regulators.

26
Questions?

27
Thank you!!!

28

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