# SA 210 – Agreeing the Terms of Audit Engagements
## Objective of the Auditor
To accept or continue an audit engagement only when the basis upon which it is to be performed has been agreed, by:
- Establishing whether the preconditions for an audit are present; and
- Confirming that there is a common understanding between the auditor and management (or TCWG, where applicable) of the terms of the audit engagement.
## Preconditions for an Audit
Two cumulative requirements must be met:
### 1. Acceptable Financial Reporting Framework
The auditor must determine whether the FRF to be applied in the preparation of the FS is acceptable.
### 2. Agreement of Mgt on its Responsibilities
Management must acknowledge and understand its responsibility:
- For preparation of FS in accordance with the AFRF;
- For such internal control as is necessary to enable the preparation of FS that are free from MM (whether due to fraud or error); and
- To provide the auditor:
- Access to all information of which Mgt is aware that is relevant to preparation of the FS;
- Additional information that the auditor may request from Mgt for the audit;
- Unrestricted access to persons within the entity to obtain audit evidence.
### If Preconditions are NOT Present
The auditor shall discuss the matter with Mgt. Unless required by L&R, the auditor shall not accept the proposed engagement.
### Limitation on Scope Before Acceptance
If Mgt or TCWG impose a limitation on scope such that the auditor would have to disclaim an opinion, the auditor shall NOT accept the engagement — unless required by L&R.
## Audit Engagement Letter — Purpose
The auditor sends the engagement letter to the client to avoid misunderstanding. It documents the agreed terms.
### Contents of an Engagement Letter
At a minimum:
- Objective and scope of the audit of the FS.
- Responsibilities of the auditor.
- Responsibilities of management.
- Identification of the AFRF for the preparation of FS.
- Reference to the expected form and content of any reports to be issued by the auditor, and a statement that there may be circumstances in which the report may differ from its expected form and content.
### Where L&R Already Prescribes the Terms
If the terms are sufficiently prescribed by L&R, the auditor need not record them in a written agreement — except for the fact that such law applies and that Mgt acknowledges and understands its responsibilities.
## Change in Terms of Audit Engagement
### Reasons a Client May Request Change
1. A change in circumstances affecting the need for the service.
2. A misunderstanding as to the nature of audit as originally requested.
3. A restriction on scope, imposed by Mgt or caused by circumstances.
Reasons (i) and (ii) → may be a reasonable basis for change.
Reason (iii) → not considered reasonable, especially if it relates to information that is incorrect, incomplete, or unsatisfactory.
### Procedure for Change
| Situation | Auditor's Action |
|---|---|
| Reasonable justification exists | Agree to new terms; record them in a new engagement letter. The new report (e.g., review report) shall not refer to the original audit engagement or procedures performed under it (except agreed-upon procedures). |
| No reasonable justification, AND Mgt refuses permission to continue the original audit | Withdraw from the engagement, if possible under L&R, AND determine whether there is an obligation to report the circumstance to TCWG, owners, or regulators. |
Before agreeing to change from audit to review or related service, the auditor must also consider any legal or contractual implications.
## Recurring Audits – Quick Note
For recurring audits, the auditor should consider whether circumstances require terms to be revised and whether to remind the entity of the existing terms.