07_acceptance & continuance of the audit engagement

8/3/2019 07_Acceptance & Continuance of the Audit Engagement

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Institut Suprieur de Gestion Master Comptabilit Contrle Audit - Module Aud

Anne universitaire 2009/2010 Sami Bouassida

CHAPTER 2 : ACCEPTANCE & CONTINUANCE OF THE AUDIT ENGAGEMEN


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This chapter presents requirements of the ISAs during the stage of the

acceptance and continuance of audit engagements.

It is mainly based of the requirements of the following standards:

- ISCQ1- ISA 220

- ISA 600- ISA 210

Numbers at the beginning of each paragraph refer to the correspondparagraphs of the concerned standard.


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INDEXI- ISQC 1 AND ACCEPTANCE & CONTINUANCE OF AUDIT ENGAGEMENTS .................................

II- ISA 220 AND ACCEPTANCE & CONTINUANCE OF AUDIT ENGAGEMENTS...............................

III- ISA 500 AND ACCEPTANCE & CONTINUANCE OF AUDIT ENGAGEMENTS .............................

IV- ISA 550 AND ACCEPTANCE & CONTINUANCE OF AUDIT ENGAGEMENTS .............................

V- ISA 600 AND ACCEPTANCE & CONTINUANCE OF AUDIT ENGAGEMENTS ..............................

VI- ISA 210 AND ACCEPTANCE & CONTINUANCE OF AUDIT ENGAGEMENTS .............................


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I- ISQC 1 AND ACCEPTANCE & CONTINUANCE OF AUDIT

ENGAGEMENTSISQC1 QUALITY CONTROL FOR FIRMS THAT PERFORM AUDITS AND REVIEWS FINANCIAL STATEMENTS, AND OTHER ASSURANCE AND RELATED SERVIC

ENGAGEMENTS

Elements of a System of Quality Control16. The firm shall establish and maintain a system of quality control thatincludes

policies and procedures that address each of the following elements:(a) Leadership responsibilities for quality within the firm.

(b) Relevant ethical requirements.

(c) Acceptance and continuance of client relationships and specificengagements.

(d) Human resources.

(e) Engagement performance.(f) Monitoring.

17. The firm shall document its policies and procedures and communicat

them to the firms personnel. (Ref: Para. A2-A3)


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Acceptance and Continuance of Client Relationships and Specific

Engagements26.

Need for establishing policies and procedures in order to ensure reasonabbefore deciding to accept or preserve a customer about :

the independence of the firm The ability to satisfy requests of the customer (competences &

resources)

the respect of the requirements of ethics

integrityof the customer


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Acceptance and Continuance of Client Relationships and Specific

EngagementsCompetence, Capabilities, and Resources (Ref: Para. 26(a))

A18. involves reviewing the specific requirements of the engagement andthe existing partner and staff profiles at all relevant levels, and includingwhether: Firm personnel have knowledge of relevant industries or subject matte

Firm personnel have experience with relevant regulatory or reportingrequirements, or the ability to gain the necessary skills and knowledge

effectively; The firm has sufficient personnel with the necessary competence andcapabilities;

Experts are available, if needed; Individuals meeting the criteria and eligibility requirements to

perform engagement quality control review are available, whereapplicable; and The firm is able to complete the engagement within the reporting

deadline.


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Integrity of Client(Ref: Para. 26(c))

A19. With regard to the integrity of a client, matters to consider include,for example:

The identity and business reputation of the clients principal owners,key management, and those charged with its governance. The nature of the clients operations, including its business practices. Information concerning the attitude of the clients principal owners,

key management and those charged with its governance towards suchmatters as aggressive interpretation of accounting standards and the

internal control environment. Whether the client is aggressively concerned with maintaining thefirms fees as low as possible.

Indications of an inappropriate limitation in the scope of work. Indications that the client might be involved in money laundering or

other criminal activities. The reasons for the proposed appointment of the firm and nonreappointment of the previous firm.

The identity and business reputation of related parties.

The extent of knowledge a firm will have regarding the integrity of a clien


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will generally grow within the context of an ongoing relationship with tha

client.

A20. Sources of information on such matters obtained by the firm mayinclude the following:

Communications with existing or previous providers of professionalaccountancy services to the client in accordance with relevant ethicalrequirements, and discussions with other third parties. Inquiry of other firm personnel or third parties such as bankers, legal

counsel and industry peers. Background searches of relevant databases.


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27. Policies and procedures shall require:

(a) The firm to obtain such information as it considers necessary in thecircumstances before accepting an engagement with a new client, when

deciding whether to continue an existing engagement, and whenconsidering acceptance of a new engagement with an existing client. (RePara. A21, A23)

A21. Deciding whether to continue a client relationship includesconsideration of significant matters that have arisen during the current o

previous engagements, and their implications for continuing the

relationship. For example, a client may have started to expand its busineoperations into an area where the firm does not possess the necessary

expertise.


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(b) If a potential conflict of interest is identified in accepting an

engagement from a new or an existing client, the firm to determinewhether it is appropriate to accept the engagement.

(c) If issues have been identified, and the firm decides to accept orcontinue the client relationship or a specific engagement, the firm todocument how the issues were resolved.


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28. The firm shall establish policies and procedures on continuing an

engagement and the client relationship, addressing the circumstanceswhere the firm obtains information that would have caused it to decline t

engagement had that information been available earlier. Such policies anprocedures shall include consideration of:(a) The professional and legal responsibilities that apply to thecircumstances, including whether there is a requirement for the firm

to report to the person or persons who made the appointment or, insome cases, to regulatory authorities; and

(b) The possibility of withdrawing from the engagement or from both the

engagement and the client relationship. (Ref: Para. A22-23)


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Withdrawal(Ref: Para. 28)

A22. Policies and procedures on withdrawal from an engagement or fromboth the engagement and the client relationship address issues that inclu

the following: Discussing with the appropriate level of the clients management andthose charged with its governance the appropriate action that the firmmight take based on the relevant facts and circumstances.

If the firm determines that it is appropriate to withdraw, discussingwith the appropriate level of the clients management and those

charged with its governance withdrawal from the engagement or

from both the engagement and the client relationship, and the reasonsfor the withdrawal.

Considering whether there is a professional, legal or regulatoryrequirement for the firm to remain in place, or for the firm to report

the withdrawal from the engagement, or from both the engagementand the client relationship, together with the reasons for thewithdrawal, to regulatory authorities.


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QUALITY CONTROL

Documenting significant matters, consultations, conclusions and thebasis for the conclusions.


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Considerations Specific to Public Sector Audit Organizations (Ref: Para. 2

28)A23. In the public sector, auditors may be appointed in accordance with

statutory procedures. Accordingly, certain of the requirements andconsiderations regarding the acceptance and continuance of clientrelationships and specific engagements as set out paragraphs 26-28 andA18-A22 may not be relevant.

Nonetheless, establishing policies and procedures as described may provvaluable information to public sector auditors in performing risk

assessments and in carrying out reporting responsibilities.


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II- ISA 220 AND ACCEPTANCE & CONTINUANCE OF AUDIT

ENGAGEMENTS

ISA 220 assumes all requirements of ISQC1.

Acceptance and Continuance of Client Relationships and AuditEngagements

12. The engagement partner shall be satisfied that appropriate procedureregarding the acceptance and continuance of client relationships and audengagements have been followed, and shall determine that conclusions

reached in this regard are appropriate. (Ref: Para. A8-A9)

13. If the engagement partner obtains information that would have cause

the firm to decline the audit engagement had that information been

available earlier, the engagement partner shall communicate thatinformation promptly to the firm, so that the firm and the engagement

partner can take the necessary action. (Ref: Para. A9)


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Independence

11. The engagement partner shall form a conclusion on compliance withindependence requirements that apply to the audit engagement. In doing

so, the engagement partner shall: (Ref: Para. A5)(a) Obtain relevant information from the firm and, where applicable,network firms, to identify and evaluate circumstances and relationshipsthat create threats to independence;

(b) Evaluate information on identified breaches, if any, of the firmsindependence policies and procedures to determine whether they create

threat to independence for the audit engagement; and

(c) Take appropriate action to eliminate such threats or reduce them to aacceptable level by applying safeguards, or, if considered appropriate, to

withdraw from the audit engagement, where withdrawal is possible undeapplicable law or regulation. The engagement partner shall promptly repo

to the firm any inability to resolve the matter for appropriate action. (RefPara. A6-A7)


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Documentation

24. The auditor shall include in the audit documentation:4

(a) Issues identified with respect to compliance with relevant ethicalrequirements and how they were resolved.

(b) Conclusions on compliance with independence requirements thatapply to the audit engagement, and any relevant discussions with the

firm that support these conclusions.

(c) Conclusions reached regarding the acceptance and continuance of

client relationships and audit engagements.


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III- ISA 500 AND ACCEPTANCE & CONTINUANCE OF AUDIT

ENGAGEMENTS

Relevance and Reliability(Ref: Para. 7)

A26. As noted in paragraph A1, while audit evidence is primarily obtainedfrom audit procedures performed during the course of the audit, it may

also include information obtained from other sources such as, for exampprevious audits, in certain circumstances, and a firms quality controlprocedures for client acceptance and continuance. The quality of all audit

evidence is affected by the relevance and reliability of the information up

which it is based.


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IV- ISA 550 AND ACCEPTANCE & CONTINUANCE OF AUDIT

ENGAGEMENTS

A14. The auditor may also obtain some information regarding the identitof the entitys related parties through inquiries of management during th

engagement acceptance or continuance process.

I tit t S i d G ti M t C t bilit C t l A dit M d l A d


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V- ISA 600 AND ACCEPTANCE & CONTINUANCE OF AUDIT

ENGAGEMENTSISA 600 SPECIAL CONSIDERATIONSAUDITS OF GROUP FINANCIALSTATEMENTS (INCLUDING THE WORK OF COMPONENT AUDITORS)

Acceptance and Continuance12. In applying ISA 220, the group engagement partner shall determine

whether sufficient appropriate audit evidence can reasonably be expectedto be obtained in relation to the consolidation process and the financialinformation of the components on which to base the group audit opinion.

For this purpose, the group engagement team shall obtain an

understanding of the group, its components, and their environments thatsufficient to identify components that are likely to be significant

components. Where component auditors will perform work on the financi

information of such components, the group engagement partner shallevaluate whether the group engagement team will be able to be involvedthe work of those component auditors to the extent necessary to obtain

sufficient appropriate audit evidence. (Ref: Para. A10-A12)

I tit t S i d G ti M t C t bilit C t l A dit M d l A d


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Acceptance and Continuance

Obtaining an Understanding at the Acceptance or Continuance Stage (Re

Para. 12)

A10. In the case of a new engagement, the group engagement teamsunderstanding of the group, its components, and their environments maybe obtained from: Information provided by group management;

Communication with group management; and Where applicable, communication with the previous group engagement

team, component management, or component auditors.

Instit t S prie r de Gestion Master Comptabilit Contrle A dit Mod le A d


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A11. The group engagement teams understanding may include matters

such as the following:

The group structure, including both the legal and organizational structu(that is, how the group financial reporting system is organized).

Components business activities that are significant to the group,including the industry and regulatory, economic and politicalenvironments in which those activities take place. The use of service organizations, including shared service centers.

A description of group-wide controls. The complexity of the consolidation process.

Whether component auditors that are not from the group engagement

partners firm or network will perform work on the financial information oany of the components, and group managements rationale for appointin

more than one auditor. Whether the group engagement team: Will have unrestricted access to those charged with governance of the

group, group management, those charged with governance of thecomponent, component management, component information, and the

component auditors (including relevant audit documentation sought by thgroup engagement team); and

Institut Suprieur de Gestion Master Comptabilit Contrle Audit Module Aud


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Will be able to perform necessary work on the financial information of t

components.



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A12. In the case of a continuing engagement, the group engagement

teams ability to obtain sufficient appropriate audit evidence may be

affected by significant changes, for example: Changes in the group structure (for example, acquisitions, disposals,

reorganizations, or changes in how the group financial reporting systemis organized). Changes in components business activities that are significant to thegroup.

Changes in the composition of those charged with governance of thegroup, group management, or key management of significant

components.

Concerns the group engagement team has with regard to the integrityand competence of group or component management.

Changes in group-wide controls. Changes in the applicable financial reporting framework.



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13. If the group engagement partner concludes that:

(a) it will not be possible for the group engagement team to obtain

sufficient appropriate audit evidence due to restrictions imposed bygroup management; and

(b) the possible effect of this inability will result in a disclaimer of opinionon the group financial statements),4the group engagement partner shall either: in the case of a new engagement, not accept the engagement, or, in th

case of a continuing engagement, withdraw from the engagement,where withdrawal is possible under applicable law or regulation; or

where law or regulation prohibits an auditor from declining an

engagement or where withdrawal from an engagement is not otherwisepossible, having performed the audit of the group financial statements

to the extent possible, disclaim an opinion on the group financialstatements. (Ref: Para. A13-A19)



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VI- ISA 210 AND ACCEPTANCE & CONTINUANCE OF AUDIT

ENGAGEMENTS

ISA 210 AGREEING THE TERMS OF AUDIT ENGAGEMENTS

Scope ISA 210ISA 210 deals with the auditors responsibilities in agreeing the terms of

the audit engagement with management and, where appropriate, thosecharged with governance.

A1. Assurance engagements, which include audit engagements, may only

be accepted when the practitioner considers that relevant requirements I220 will be satisfied

Effective DateISA 210 effective for audits of financial statements for periods beginningor after December 15, 2009.



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Objective3. The objective of the auditor is to accept or continue an auditengagement only when the basis upon which it is to be performed has beagreed, through:

(a) Establishing whether the preconditions for an audit are present; and(b) Confirming that there is a common understanding between the audito

and management and, where appropriate, those charged with

governance of the terms of the audit engagement.



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Preconditions for an Audit

Preconditions for an audit include:

The use by management of an acceptable financial reportingframework in the preparation of the financial statements

- The agreement of management and, where appropriate, thosecharged with governance to the premise on which an audit isconducted.



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6. In order to establish whether the preconditions for an audit are presen

the auditor shall:

(a) Determine whether the financial reporting framework to be applied inthe preparation of the financial statements is acceptable; and (Ref: Para.

A2-A10)(b) Obtain the agreement of management that it acknowledges andunderstands its responsibility: (Ref: Para. A11-A14, A20)(i) For the preparation of the financial statements in accordance with the

applicable financial reporting framework, including where relevant their fpresentation; (Ref: Para. A15)

(ii) For such internal control as management determines is necessary to

enable the preparation of financial statements that are free from materiamisstatement, whether due to fraud or error; and

(Ref: Para. A16-A19)(iii) To provide the auditor with:

a. Access to all information of which management is aware that is relevato the preparation of the financial statements such as records,documentation and other matters;

b. Additional information that the auditor may request from managemenfor the purpose of the audit; and



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c. Unrestricted access to persons within the entity from whom the audito

determines it necessary to obtain audit evidence.



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Factors Affecting Audit Engagement Acceptance

8. If the preconditions for an audit are not present, the auditor shall

discuss the matter with management.

Unless required by law or regulation to do so, the auditor shall not accepthe proposed audit engagement:(a) If the auditor has determined that the financial reporting framework be applied in the preparation of the financial statements is unacceptable,

except as provided in paragraph 19; or(b) If the agreement referred to in paragraph 6(b) has not been obtained

Limitation on Scope Prior to Audit Engagement Acceptance

(c) 7. If management or those charged with governance impose alimitation on the scope of the auditors work in the terms of a proposed

audit engagement such that the auditor believes the limitation will result the auditor disclaiming an opinion on the financial statements



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Financial Reporting Framework Prescribed by Law or Regulation

19. If the auditor has determined that the financial reporting frameworkprescribed by law or regulation would be unacceptable but for the fact th

it is prescribed by law or regulation, the auditor shall accept the auditengagement only if the following conditions are present: (Ref: Para. A35)(a) Management agrees to provide additional disclosures in the financialstatements required to avoid the financial statements being misleading;

and(b) It is recognized in the terms of the audit engagement that:

(i) The auditors report on the financial statements will incorporate

an Emphasis of Matter paragraph, drawing users attention to theadditional disclosures, in accordance with ISA 706;4 and

(ii) Unless the auditor is required by law or regulation to express theauditors opinion on the financial statements by using the phrases

present fairly, in all material respects, or give a true and fairview in accordance with the applicable financial reportingframework, the auditors opinion on the financial statements will

not include such phrases.



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20. If the conditions outlined in paragraph 19 are not present and the

auditor is required by law or regulation to undertake the audit

engagement, the auditor shall:(a) Evaluate the effect of the misleading nature of the financial statemen

on the auditors report; and(b) Include appropriate reference to this matter in the terms of the auditengagement.



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The Financial Reporting Framework (Ref: Para. 6(a))

A2. A condition for acceptance of an assurance engagement is that the

criteria referred to in the definition of an assurance engagement aresuitable and available to intended users. Criteria are the benchmarks useto evaluate or measure the subject matter including, where relevant,benchmarks for presentation and disclosure.

Suitable criteria enable reasonably consistent evaluation or measuremenof a subject matter within the context of professional judgment.


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Determining the Acceptability of the Financial Reporting Framework

A4. Factors that are relevant to the auditors determination of theacceptability of the financial reporting framework to be applied in the

preparation of the financial statements include: The nature of the entity (for example, whether it is a businessenterprise, a public sector entity or a not for profit organization); The purpose of the financial statements (for example, whether they are

prepared to meet the common financial information needs of a widerange of users or the financial information needs of specific users);

The nature of the financial statements (for example, whether the

financial statements are a complete set of financial statements or asingle financial statement); and

Whether law or regulation prescribes the applicable financial reportingframework.


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A6. In some cases, the financial statements will be prepared in accordan

with a financial reporting framework designed to meet the financialinformation needs of specific users.

ISA 800 discusses the acceptability of financial reporting frameworksdesigned to meet the financial information needs of specific users.

General purpose frameworksExamples of such financial reporting standards include:

International Financial Reporting Standards (IFRSs) promulgated by

the International Accounting Standards Board; International Public Sector Accounting Standards (IPSASs)

promulgated by the International Public Sector Accounting StandardsBoard; and

Accounting principles promulgated by an authorized or recognizedstandards setting organization in a particular jurisdiction, provided theorganization follows an established and transparent process involving

deliberation and consideration of the views of a wide range ofstakeholders.


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These financial reporting standards are often identified as the applicable

financial reporting framework in law or regulation governing the

preparation of general purpose financial statements.

Financial reporting frameworks prescribed by law or regulationA9. In accordance with paragraph 6(a), the auditor is required todetermine whether the financial reporting framework, to be applied in thpreparation of the financial statements, is acceptable.

In the absence of indications to the contrary, such a financial reporting

framework is presumed to be acceptable for general purpose financial

statements prepared by such entities.




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4. The auditor may decide to compare the accounting conventions to the

requirements of an existing financial reporting framework considered to b

acceptable. For example, the auditor may compare the accountingconventions

to IFRSs. For an audit of a small entity, the auditor may decide to compatheaccounting conventions to a financial reporting framework specificallydeveloped for such entities by an authorized or recognized standards

settingorganization. When the auditor makes such a comparison and differences

are

identified, the decision as to whether the accounting conventions adoptedin the

preparation of the financial statements constitute an acceptable financialreporting framework includes considering the reasons for the differences

andwhether application of the accounting conventions, or the description of tfinancial reporting framework in the financial statements, could result in

financial statements that are misleading.




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Obtain the agreement of management that it acknowledges and

understands its responsibility: (Ref: Para. A11-A14, A20)

A13. ISA 580 requires the auditor to request management to providewritten representations that it has fulfilled certain of its responsibilities. Imay therefore be appropriate to make management aware that receipt osuch written representations will be expected, together with written

representations required by other ISAs and, where necessary, writtenrepresentations to support other audit evidence relevant to the financial

statements or one or more specific assertions in the financial statements

A14. Where management will not acknowledge its responsibilities, or agrto provide the written representations, the auditor will be unable to obtai

sufficient appropriate audit evidence. In such circumstances, it would notbe appropriate for the auditor to accept the audit engagement, unless law

or regulation requires the auditor to do so. In cases where the auditor isrequired to accept the audit engagement, the auditor may need to explaito management the importance of these matters, and the implications fo

the auditors report.




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Agreement on Audit Engagement Terms

9. The auditor shall agree the terms of the audit engagement with

management or those charged with governance, as appropriate. (Ref:Para. A21)

10. Subject to paragraph 11, the agreed terms of the audit engagementshall be recorded in an audit engagement letter or other suitable form ofwritten agreement and shall include: (Ref: Para. A22-A25)

(a) The objective and scope of the audit of the financial statements;(b) The responsibilities of the auditor;

(c) The responsibilities of management;

(d) Identification of the applicable financial reporting framework for thepreparation of the financial statements; and

(e) Reference to the expected form and content of any reports to be issuby the auditor and a statement that there may be circumstances in which

a report may differ from its expected form and content.




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11. If law or regulation prescribes in sufficient detail the terms of the audengagement referred to in paragraph 10, the auditor need not record the

in a written agreement. (Ref: Para. A22, A26-A27)




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A23. The form and content of the audit engagement letter may vary for

each entity.

In addition to including the matters required by paragraph 10, an auditengagement letter may make reference to, for example:

Elaboration of the scope of the audit, including reference to applicablelegislation, regulations, ISAs, and ethical and other pronouncements ofprofessional bodies to which the auditor adheres. The form of any other communication of results of the audit

engagement. The 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 thoughthe audit is properly planned and performed in accordance with ISAs.

Arrangements regarding the planning and performance of the audit,including the composition of the audit team.

The expectation that management will provide written representations The agreement of management to make available to the auditor draftfinancial statements and any accompanying other information in time to

allow the auditor to complete the audit in accordance with the proposedtimetable.




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The agreement of management to inform the auditor of facts that may

affect the financial statements, of which management may become

aware during the period from the date of the auditors report to the datethe financial statements are issued.

The basis on which fees are computed and any billing arrangements. A request for management to acknowledge receipt of the auditengagement letter and to agree to the terms of the engagement outlinedtherein.

A24. When relevant, the following points could also be made in the auditengagement letter:

Arrangements concerning the involvement of other auditors and expert

in some aspects of the audit. Arrangements concerning the involvement of internal auditors and othe

staff of the entity. Arrangements to be made with the predecessor auditor, if any, in the

case of an initial audit. Any restriction of the auditors liability when such possibility exists. A reference to any 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

A25. When the auditor of a parent entity is also the auditor of a

component, the factors that may influence the decision whether to send separate audit engagement letter to the component include the following

Who appoints the component auditor; Whether a separate auditors 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 parenentity.




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Recurring Audits

13. On recurring audits, the auditor shall assess whether circumstancesrequire the terms of the audit engagement to be revised and whether the

is a need to remind the entity of the existing terms of the auditengagement. (Ref: Para. A28)A28. The auditor may decide not to send a new audit engagement letter other written agreement each period. However, the following factors may

make it appropriate to revise the terms of the audit engagement or toremind the entity of existing terms:

Any indication that the entity misunderstands the objective and scope o

the audit. Any revised or special terms of the audit engagement.

A recent change of senior management. A significant change in ownership.

A significant change in nature or size of the entitys business. A change in legal or regulatory requirements. A change in the financial reporting framework adopted in the

preparation of the financial statements. A change in other reporting requirements.




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Acceptance of a Change in the Terms of the Audit Engagement

14. The auditor shall not agree to a change in the terms of the audit

engagement where there is no reasonable justification for doing so. (Ref:Para. A29-A31)

A29. A request from the entity for the auditor to change the terms of theaudit engagement may result from a change in circumstances affecting tneed for the service, a misunderstanding as to the nature of an audit as

originally requested or a restriction on the scope of the audit engagemenwhether imposed by management or caused by other circumstances.

The auditor, considers the justification given for the request, particularlythe implications of a restriction on the scope of the audit engagement.

A change in circumstances that affects the entitys requirements or a

misunderstanding concerning the nature of the service originally requestmay be considered a reasonable basis for requesting a change in the audengagement.




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A31. In contrast, a change may not be considered reasonable if it appear

that the change relates to information that is incorrect, incomplete or

otherwise unsatisfactory. An example might be where the auditor is unabto obtain sufficient appropriate audit evidence regarding receivables and

the entity asks for the audit engagement to be changed to a reviewengagement to avoid a qualified opinion or a disclaimer of opinion.




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15. If, prior to completing the audit engagement, the auditor is requesteto change the audit engagement to an engagement that conveys a lower

level of assurance, the auditor shall determine whether there is reasonabjustification for doing so. (Ref: Para. A32-A33)

A32. Before agreeing to change an audit engagement to a review or a

related service,an auditor who was engaged to perform an audit inaccordance with ISAs may concludes that there is reasonable justificatio

to change the audit engagement to a review or a related service;

In order to avoid confusing the reader, the report on the related service

would not include reference to:(a) The original audit engagement; or

(b) Any procedures that may have been performed in the original auditengagement, except where the audit engagement is changed to anengagement to undertake agreed-upon procedures and thus reference to

the procedures performed is a normal part of the report.




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16. If the terms of the audit engagement are changed, the auditor and

management shall agree on and record the new terms of the engagemen

in an engagement letter or other suitable form of written agreement.



17 If th dit i bl t t h f th t f th di


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17. If the auditor is unable to agree to a change of the terms of the audi

engagement and is not permitted by management to continue the origina

audit engagement, the auditor shall:(a) Withdraw from the audit engagement where possible under applicabl

law or regulation; and

(b) Determine whether there is any obligation, either contractual orotherwise, to report the circumstances to other parties, such as thosecharged with governance, owners or regulators.




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Example of an Audit Engagement Letter

To the appropriate representative of management or those charged with

governance of ABC Company

[The objective and scope of the audit]

You have requested that we audit the financial statements of ABC

Company, which comprise the balance sheet as at December 31, 20X1, a

the income statement, statement of changes in equity and cash flowstatement for the year then ended, and a summary of significant

accounting policies and other explanatory information. We arepleased to confirm our acceptance and our understanding of this audit

engagement by means of this letter. Our audit will be conducted with theobjective of our expressing an opinion on the financial statements.[The responsibilities of the auditor]

We will conduct our audit in accordance with International Standards onAuditing (ISAs). Those standards require that we comply with ethical



eq i ements and plan and pe fo m the a dit to obtain easonable


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requirements and plan and perform the audit to obtain reasonable

assurance about whether the financial statements

are free from material misstatement. An audit involves performingprocedures to obtain audit evidence about the amounts and disclosures i

the financial statements. The procedures selected depend on the auditor

judgment, including the assessment of the risks of material misstatemenof the financial statements, whether due to fraud or error.An audit also includes evaluating the appropriateness of accounting polic

used and the reasonableness of accounting estimates made bymanagement, as well as evaluating the overall presentation of the financ

statements.

Because of the inherent limitations of an audit, together with the inherenlimitations of internal control, there is an unavoidable risk that some

material misstatements may not be detected, even though the audit isproperly planned and performed in accordance with ISAs.

In making our risk assessments, we consider internal control relevant tothe entitys preparation of the financial statements in order to design audprocedures that are appropriate in the circumstances, but not for the

purpose of expressing an opinion on the effectiveness of the entitysinternal control. However, we will communicate to you in



writing concerning any significant deficiencies in internal control relevant


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writing concerning any significant deficiencies in internal control relevant

the audit of the financial statements that we have identified during the

audit.[The responsibilities of management and identification of the applicable

financial reporting framework]

Our audit will be conducted on the basis that [management and, whereappropriate, those charged with governance]acknowledge and understanthat they have responsibility:

(a) For the preparation and fair presentation of the financial statements iaccordance with International Financial Reporting Standards;

(b) For such internal control as [management] determines is necessary tenable the preparation of financial statements that are free from materiamisstatement, whether due to fraud or error; and

(c) To provide us with:(i) Access to all information of which [management] is aware that is

relevant to the preparation of the financial statements such as records,documentation and other matters;(ii) Additional information that we may request from [management] for t

purpose of the audit; and



(iii) Unrestricted access to persons within the entity from whom we


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(iii) Unrestricted access to persons within the entity from whom we

determine it necessary to obtain audit evidence.

As part of our audit process, we will request from [management and,where appropriate,those charged with governance], written confirmation

concerning representations made to us in connection with the audit.

We look forward to full cooperation from your staff during our audit.[Other relevant information][Insert other information, such as fee arrangements, billings and other

specific terms, as appropriate.][Reporting]

[Insert appropriate reference to the expected form and content of theauditors report.]The form and content of our report may need to be amended in the light

our audit findings.Please sign and return the attached copy of this letter to indicate your

acknowledgement of, and agreement with, the arrangements for our audof the financial statements including our respective responsibilities.XYZ & Co.

Acknowledged and agreed on behalf of ABC Company by(signed)




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......................

Name and Title

Date



ISA 600 Terms of Engagement (Ref: Para 14)


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ISA 600 Terms of Engagement(Ref: Para. 14)

A20. The terms of engagement identify the applicable financial reporting

framework. Additional matters may be included in the terms of a groupaudit engagement, such as the fact that:

The communication between the group engagement team and the

component auditors should be unrestricted to the extent possible underlaw or regulation; Important communications between the component auditors, those

charged with governance of the component, and componentmanagement, including communications on significant deficiencies in

internal control, should be communicated as well to the groupengagement team; Important communications between regulatory authorities and

components related to financial reporting matters should becommunicated to the group engagement team; and

To the extent the group engagement team considers necessary, it shoube permitted: Access to component information, those charged with governance of

components, component management, and the component auditors



(including relevant audit documentation sought by the group engagemen


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(including relevant audit documentation sought by the group engagemen

team); and To perform work or request a component auditor to perform work on th

financial information of the components.A21. Restrictions imposed on:

the group engagement teams access to component information, thosecharged with governance of components, component management, or

the component auditors (including relevant audit documentation soughtby the group engagement team); or the work to be performed on the financial information of the componen

after the group engagement partners acceptance of the group auditengagement, constitute an inability to obtain sufficient appropriate auditevidence that may affect the group audit opinion. In exceptional

circumstances it may even lead to withdrawal from the engagement whewithdrawal is possible under applicable law or regulation

07_acceptance & continuance of the audit engagement

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