## SA 210: Agreeing the Terms of Audit Engagement

Scope: SA 210 deals with the auditor's responsibilities in agreeing the terms of the audit engagement with management and, where appropriate, Those Charged With Governance (TCWG).

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### I. Objective of the Auditor

Accept or continue an audit engagement only when the basis has been agreed, by:

Step 1 — Establish Preconditions for an Audit:

Acceptable Financial Reporting Framework (AFRF) is being used
Management acknowledges THREE responsibilities:

1. Preparing FS in accordance with AFRF

2. Designing/maintaining adequate Internal Controls

3. Providing unrestricted access to: all relevant information/records, additional information on request, and persons within the entity

Step 2 — Confirm Common Understanding between auditor, management, and TCWG of the terms of engagement.

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### II. Engagement Letter

Who sends it? The auditor sends it to the client.

Purpose: Reduce the possibility of misunderstanding between auditor and client.

Contents:

(a) Objective and scope of the audit
(b) Responsibilities of the auditor
(c) Responsibilities of the management
(d) Identification of Applicable Financial Reporting Framework
(e) Expected form and content of reports; note that reports may differ from expected form

> If law/regulation prescribes terms in sufficient detail, no written agreement is needed — except to note the law applies and that management acknowledges its responsibilities.

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### III. Cases Under SA 210

#### Case (i): Preconditions Not Present

Auditor shall discuss the matter with management
Shall not accept (unless law requires) if:
Financial Reporting Framework is unacceptable, OR
Management does not agree to its responsibilities

#### Case (ii): Limitation on Scope Prior to Acceptance

If the limitation will result in a disclaimer of opinion → auditor shall not accept the engagement

#### Case (iii): Change in Terms of Audit Engagement

Auditor shall not agree to a change unless there is reasonable justification
Reasonable justification:
Change in circumstances affecting entity's requirements
Misunderstanding about the nature of service originally requested

#### Case (iv): Non-agreement on Change + Management Refuses Original Terms

(a) Withdraw from the audit engagement
(b) Determine whether any obligation exists to report to owners, TCWG, or regulators

Worked example

### Example 1

An auditor is appointed to audit XYZ Ltd. Before commencing, she sends an Engagement Letter specifying: scope of audit, her responsibilities, management's responsibilities, the applicable framework (Ind AS), and form of the audit report. This is SA 210 compliance — agreeing terms in writing before the engagement begins.

### Example 2

Mid-audit, management asks the auditor to downgrade the engagement from a full audit to a compilation (remove the opinion). The auditor evaluates: is there reasonable justification? Since the only reason is to avoid an adverse opinion, there is NO reasonable justification. Under Case (iii), the auditor should not accept this change.

### Example 3

Before accepting a new audit, the auditor learns that management will deny access to branch inventory records due to 'confidentiality'. This scope restriction would result in a disclaimer of opinion. Under Case (ii), the auditor shall not accept this engagement.

⚠️ Common exam mistakes

Confusing 'preconditions for an audit' with conditions during the audit — preconditions are assessed BEFORE accepting the engagement.
Stating that the client sends the Engagement Letter — it is always sent by the auditor to the client.
Forgetting management's THREE responsibilities under SA 210: (1) preparing FS per AFRF, (2) maintaining IC, (3) providing unrestricted access — all three must be acknowledged.
Saying the auditor 'may' withdraw in Case (iv) — SA 210 makes withdrawal an available recourse, coupled with a duty to determine reporting obligations to owners/TCWG/regulators.
Treating a 'change in circumstances' as no justification for changing engagement terms — SA 210 explicitly recognises genuine change in circumstances as reasonable justification.

Bare-Act text Requirements — Agreement on Audit Engagement Terms · SA 210 — Agreeing the Terms of Audit Engagements · click to expand

The auditor shall agree the terms of the audit engagement with management or those charged with governance, as appropriate. The agreed terms of the audit engagement shall be recorded in an audit engagement letter or other suitable form of written agreement.

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