## SA 210 — Premises for Accepting an Audit Engagement

### What Are Premises?

Before agreeing to an audit engagement, the auditor must confirm that certain fundamental pre-conditions exist. These are responsibilities that management and TCWG (Those Charged with Governance) must fulfil.

### Three Fundamental Responsibilities of Management/TCWG

#### 1. Preparation & Presentation of FS

Management must prepare and present financial statements in accordance with the applicable Financial Reporting Framework (FRF).

#### 2. Internal Controls

Management must be responsible for the design, implementation and maintenance of internal controls necessary to enable the preparation of FS that are free from material misstatement.

#### 3. Access and Information

Management must agree to provide the auditor with:

(a) All relevant information for preparation and presentation of FS (accounting records, documentation, etc.)
(b) Any additional information requested by the auditor
(c) Unrestricted access to persons within the entity from whom the auditor determines it necessary to obtain audit evidence

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### Why This Matters

If management refuses to acknowledge these responsibilities, the auditor cannot accept the engagement — the premise for a valid audit relationship does not exist.

> Mnemonic for the 3 responsibilities: P-I-A — Preparation of FS, Internal Controls, Access to information.

Worked example

### Example 1

Scenario — Premise Not Met:

Before signing an engagement letter, management of XYZ Ltd tells the auditor: 'You can only review the documents we give you — you may not speak to our finance staff directly.' This violates pre-condition (c) — unrestricted access to persons within the entity. The auditor should not accept the engagement unless management withdraws this restriction, because a fundamental premise is absent.

### Example 2

Scenario — Premise Met:

ABC Ltd's board passes a resolution confirming that management will (1) prepare accounts under Ind AS, (2) maintain adequate internal controls, and (3) provide the auditor full access to records and personnel. All three premises are met — the auditor may proceed to agree the terms of engagement.

⚠️ Common exam mistakes

Stating only one or two of the three pre-conditions — all three (FS preparation, IC design/implementation/maintenance, and full access) must be stated.
Confusing 'premises' with the auditor's own responsibilities — premises are management's/TCWG's responsibilities, not the auditor's.
Omitting 'maintenance' of internal controls — students often write only 'design and implementation' and forget 'maintenance'.
Saying the auditor must verify internal controls as a premise — the premise is merely that management is responsible for IC; it is not that the IC must actually be effective.
Confusing TCWG with management — TCWG includes the board/audit committee; management includes CFO/CEO. Both have pre-conditions under SA 210.

Reference:

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Premises / Pre-conditions for Accepting an Audit Engagement

Worked example

⚠️ Common exam mistakes