## Audit Engagement Letter (SA 210)

### What is it?

An Audit Engagement Letter is a written agreement that records the agreed terms of an audit engagement between the auditor and the client.

Sent by the auditor to the client (management or those charged with governance)
Reduces the possibility of misunderstanding about the objective and scope of the audit
Governed by SA 210 – Agreeing the Terms of Audit Engagements

### Mandatory Contents (Five Key Elements)

1. Objective and scope of the audit of financial statements

2. Responsibilities of the auditor

3. Responsibilities of management

4. Applicable financial reporting framework for preparation of financial statements

5. Expected form and content of reports to be issued by the auditor, with a statement that there may be circumstances in which the report may differ from its expected form and content

### Exception — When Law Prescribes Terms

If law/regulation prescribes the terms in sufficient detail, a full written agreement is not required. However, the auditor must still record:

That such law/regulation applies, and
That management acknowledges and understands its responsibilities

### Ethical Dimension

Not sending an engagement letter violates the fundamental principle of Professional Competence and Due Care under the Code of Ethics. The principle requires the auditor to act diligently in accordance with applicable technical and professional standards (which include SA 210).

Worked example

### Example 1

CA H and the Society — Ethical Violation for Not Sending Engagement Letter

CA H was appointed to audit a society. He failed to send the engagement letter. The governing body consequently believed the audit would provide absolute assurance against errors and frauds.

Analysis:

SA 210 requires the auditor to agree and record terms in an engagement letter before commencing the audit.
Without the letter, the governing body formed an incorrect view of the audit's objective and scope.
CA H violated the fundamental principle of Professional Competence and Due Care by not complying with SA 210.
Maintaining professional competence requires awareness of current standards — not sending the letter demonstrates a lack of that awareness.

### Example 2

Articled Clerk Mr. J — Drafting an Engagement Letter

Mr. J is part of a team conducting a first-time audit of a company and is asked to draft the engagement letter.

Contents to include:

1. Objective and scope of the audit of financial statements

2. Responsibilities of the auditor

3. Responsibilities of management

4. Applicable financial reporting framework

5. Expected form and content of the audit report, noting that circumstances may cause the report to differ from the expected form

⚠️ Common exam mistakes

Believing the engagement letter is sent by the client to the auditor — it is always prepared and sent by the auditor to the client
Omitting 'expected form and content of reports' (point 5) when listing mandatory contents — this is a frequently tested item
Thinking the engagement letter is always mandatory even when law prescribes terms in sufficient detail — a written agreement may be waived in that case
Not linking failure to send the engagement letter to a violation of professional ethics (specifically, professional competence and due care)
Confusing the objective of audit (reasonable assurance) with absolute assurance — the engagement letter must make this distinction clear to avoid misunderstanding

Bare-Act text SA 210 · SA 210 – Agreeing the Terms of Audit Engagements (ICAI) · 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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Audit Engagement Letter – Contents, Purpose and SA 210

Worked example

⚠️ Common exam mistakes