SA 210 Terms of Engagement

SA 210*
Agreeing the Terms of Audit
Engagements
(Effective for audits of financial statements for periods
beginning on or after April 1, 2010)

Contents
Paragraph(s)
Introduction
Scope of this SA............... ..................................................................... 1
Effective Date. ........................................................................................ 2
Objective ............................................................................................... 3
Definitions ......................................................................................... 4-5
Requirements
Preconditions for an Audit .................................................................. 6-8
Agreement on Audit Engagement Terms ........................................ 9-12
Recurring Audits .................................................................................. 13
Acceptance of a Change in the Terms of the Audit
Engagement ................................................................................... 14-17
Additional Considerations in Engagement Acceptance .................. 18-21
Application and Other Explanatory Material
Scope of this SA .................................................................................. A1
Preconditions for an Audit ........................................................... A2-A20
Agreement on Audit Engagement Terms ................................. A21-A28
Recurring Audits ................................................................................ A29
Acceptance of a Change in the Terms of the Audit
Engagement .............................................................................. A30-A34
Additional Considerations in Engagement
Acceptance ............................................................................... A35-A38
Material Modifications to ISA 210, “Agreeing the Terms of Audit
Engagements”
Appendix 1: Examples of an Audit Engagement Letter

*Published in September, 2009 issue of the Journal.
Appendix 2: Determining the Acceptability of General Purpose
Frameworks

Standard on Auditing (SA) 210, “Agreeing the Terms of Audit
Engagements” should be read in the context of the “Preface to the
Standards on Quality Control, Auditing, Review, Other Assurance and
Related Services,” which sets out the authority of SAs and SA 200,
“Overall Objectives of the Independent Auditor and the Conduct of an
Audit in Accordance with Standards on Auditing”.

SA 210 2
Introduction
Scope of this SA
1. This Standard on Auditing (SA) deals with the auditor’s responsibilities in
agreeing the terms of the audit engagement with management and, where
appropriate, those charged with governance. This includes establishing that
certain preconditions for an audit, responsibility for which rests with management
and, where appropriate, those charged with governance, are present. SA 2201
deals with those aspects of engagement acceptance that are within the control of
the auditor. (Ref: Para. A1)
Effective Date
2. This SA is effective for audits of financial statements for periods beginning
on or after April 1, 2010.
Objective
3. The objective of the auditor is to accept or continue an audit engagement
only when the basis upon which it is to be performed has been agreed, through:
(a) Establishing whether the preconditions for an audit are present; and
(b) Confirming that there is a common understanding between the auditor and
management and, where appropriate, those charged with governance of
the terms of the audit engagement.
Definitions
4. For purposes of the SAs, the following term has the meaning attributed
below:
Preconditions for an audit – The use by management of an acceptable financial
reporting framework2 in the preparation of the financial statements and the
agreement of management and, where appropriate, those charged with
governance to the premise3 on which an audit is conducted.
5. For the purposes of this SA, references to “management” should be read
hereafter as “management and, where appropriate, those charged with governance”.

1 SA 220, “Quality Control for an Audit of Financial Statements”.
2 SA 200, “Overall Objectives of the Independent Auditor and the Conduct of an Audit in
accordance with Standards on Auditing”, paragraph 13 (a).
3 SA 200, Paragraph 13(j).

3 SA 210
Requirements
Preconditions for an Audit
6. In order to establish whether the preconditions for an audit are present,
the auditor shall:
(a) Determine whether the financial reporting framework to be applied in the
preparation of the financial statements is acceptable; and (Ref: Para. A2-
A9)
(b) Obtain the agreement of management that it acknowledges and
understands its responsibility: (Ref: Para A10-A13, A20)
(i) For the preparation of the financial statements in accordance with the
applicable financial reporting framework, including where relevant
their fair presentation; (Ref: Para. A14)
(ii) For such internal control as management determines is necessary to
enable the preparation of financial statements that are free from
material misstatement, whether due to fraud or error; and (Ref: Para.
A15-A18)
(iii) To provide the auditor with:
a. 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;
b. Additional information that the auditor may request from
management for the purpose of the audit; and (Ref: Para. A19)
c. Unrestricted access to persons within the entity from whom the
auditor determines it necessary to obtain audit evidence.
Limitation on Scope Prior to Audit Engagement Acceptance
7. If management or those charged with governance impose a limitation on
the scope of the auditor’s work in the terms of a proposed audit engagement
such that the auditor believes the limitation will result in the auditor disclaiming
an opinion on the financial statements, the auditor shall not accept such a limited
engagement as an audit engagement, unless required by law or regulation to do
so.
Other 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 accept the proposed audit engagement:

SA 210 4
(a) If the auditor has determined that the financial reporting framework to 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.
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 engagement shall
be recorded in an audit engagement letter or other suitable form of written
agreement and shall include: (Ref: Para. A22-A26)
(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 the
preparation of the financial statements; and
(e) 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 a
report may differ from its expected form and content. (Ref: Para. A24)
11. If law or regulation prescribes in sufficient detail the terms of the audit
engagement referred to in paragraph 10, the auditor need not record them in a
written agreement, except for the fact that such law or regulation applies and that
management acknowledges and understands its responsibilities as set out in
paragraph 6(b). (Ref: Para. A22, A27-A28)
12. If law or regulation prescribes responsibilities of management similar to
those described in paragraph 6(b), the auditor may determine that the law or
regulation includes responsibilities that, in the auditor’s judgment, are equivalent
in effect to those set out in that paragraph. For such responsibilities that are
equivalent, the auditor may use the wording of the law or regulation to describe
them in the written agreement. For those responsibilities that are not prescribed
by law or regulation such that their effect is equivalent, the written agreement
shall use the description in paragraph 6(b). (Ref: Para. A27)
Recurring Audits
13. On recurring audits, the auditor shall assess whether circumstances
require the terms of the audit engagement to be revised and whether there is a
need to remind the entity of the existing terms of the audit engagement. (Ref:
Para. A29)

5 SA 210
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.
A30-A32)
15. If, prior to completing the audit engagement, the auditor is requested to
change the audit engagement to an engagement that conveys a lower level of
assurance, the auditor shall determine whether there is reasonable justification
for doing so. (Ref: Para. A33-A34)
16. If the terms of the audit engagement are changed, the auditor and
management shall agree on and record the new terms of the engagement in an
engagement letter or other suitable form of written agreement.
17. If the auditor is unable to agree to a change of the terms of the audit
engagement and is not permitted by management to continue the original audit
engagement, the auditor shall:
(a) Withdraw from the audit engagement where possible under applicable law
or regulation; and
(b) Determine whether there is any obligation, either contractual or otherwise,
to report the circumstances to other parties, such as those charged with
governance, owners or regulators.
Additional Considerations in Engagement Acceptance
Financial Reporting Standards4 Supplemented by Law or Regulation
18. If financial reporting standards established by an authorised or recognised
standards setting organization are supplemented by law or regulation, the auditor
shall determine whether there are any conflicts between the financial reporting
standards and the additional requirements. If such conflicts exist, the auditor
shall discuss with management the nature of the additional requirements and
shall agree whether:
(a) The additional requirements can be met through additional disclosures in
the financial statements; or
(b) The description of the applicable financial reporting framework in the
financial statements can be amended accordingly.

4 Accounting Standards issued by the ICAI or Accounting Standards, notified by the Central

Government by publishing the same as the Companies (Accounting Standards) Rules, 2006, or the
Accounting Standards for Local Bodies issued by the ICAI, as may be applicable.

SA 210 6
If neither of the above actions is possible, the auditor shall determine whether it
will be necessary to modify the auditor’s opinion in accordance with SA
705(Revised)5. (Ref: Para. A35)
Financial Reporting Framework Prescribed by Law or Regulation—Other
Matters Affecting Acceptance
19. If the auditor has determined that the financial reporting framework
prescribed by law or regulation would be unacceptable but for the fact that it is
prescribed by law or regulation, the auditor shall accept the audit engagement
only if the following conditions are present: (Ref: Para. A36)
(a) Management agrees to provide additional disclosures in the financial
statements required to avoid the financial statements being misleading; and
(b) It is recognised in the terms of the audit engagement that:
(i) The auditor’s report on the financial statements will incorporate an
Emphasis of Matter paragraph, drawing users’ attention to the
additional disclosures, in accordance with SA 706(Revised)6 ; and
(ii) Unless the auditor is required by law or regulation to express the
auditor’s opinion on the financial statements by using the phrases
“present fairly, in all material respects”, or “give a true and fair view” in
accordance with the applicable financial reporting framework, the
auditor’s opinion on the financial statements will not include such
phrases.
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 statements on
the auditor’s report; and
(b) Include appropriate reference to this matter in the terms of the audit
engagement.
Auditor’s Report Prescribed by Law or Regulation
21. In some cases, the law or regulation applicable to the entity prescribes the
layout or wording of the auditor’s report in a form or in terms that are significantly
different from the requirements of SAs. In these circumstances, the auditor shall
evaluate:

5 SA 705(Revised), “Modifications to the Opinion in the Independent Auditor’s Report”.
6 SA 706(Revised), “Emphasis of Matter Paragraphs and Other Matter Paragraphs in the
Independent Auditor’s Report”.

7 SA 210
(a) Whether users might misunderstand the assurance obtained from the audit
of the financial statements and, if so,
(b) Whether additional explanation in the auditor’s report can mitigate possible
misunderstanding7.
If the auditor concludes that additional explanation in the auditor’s report cannot
mitigate possible misunderstanding, the auditor shall not accept the audit
engagement, unless required by law or regulation to do so. An audit conducted in
accordance with such law or regulation does not comply with SAs. Accordingly,
the auditor shall not include any reference within the auditor’s report to the audit
having been conducted in accordance with SAs8. (Ref: Para. A37-A38)
***
Application and Other Explanatory Material
Scope of this SA (Ref: Para. 1)
A1. Assurance engagements, which include audit engagements, may only be
accepted when the practitioner considers that relevant ethical requirements such
as independence and professional competence will be satisfied, and when the
engagement exhibits certain characteristics9. The auditor’s responsibilities in
respect of ethical requirements in the context of the acceptance of an audit
engagement and in so far as they are within the control of the auditor are dealt
with in SA 22010. This SA deals with those matters (or preconditions) that are
within the control of the entity and upon which it is necessary for the auditor and
the entity’s management to agree.
Preconditions for an Audit
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 are suitable and
available to intended users11. Criteria are the benchmarks used to evaluate or
measure the subject matter including, where relevant, benchmarks for
presentation and disclosure. Suitable criteria enable reasonably consistent
evaluation or measurement of a subject matter within the context of professional
judgment. For purposes of the SAs, the applicable financial reporting framework
provides the criteria the auditor uses to audit the financial statements, including
where relevant their fair presentation.

7 SA 706(Revised).
8 SA 700(Revised), “Forming an Opinion and Reporting on Financial Statements”, paragraph 49.
9 “Framework for Assurance Engagements,” paragraph 16.
10 SA 220, paragraphs 9-11.
11 “Framework for Assurance Engagements,” paragraph 16(b)(ii).

SA 210 8
A3. Without an acceptable financial reporting framework, management does not
have an appropriate basis for the preparation of the financial statements and the
auditor does not have suitable criteria for auditing the financial statements. In
many cases the auditor may presume that the applicable financial reporting
framework is acceptable, as described in paragraphs A8-A9.
Determining the Acceptability of the Financial Reporting Framework
A4. Factors that are relevant to the auditor’s determination of the acceptability
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 business enterprise, 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 wide range
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 a single financial
statement); and
● Whether law or regulation prescribes the applicable financial reporting
framework.
A5. Many users of financial statements are not in a position to demand financial
statements tailored to meet their specific information needs. While all the
information needs of specific users cannot be met, there are financial information
needs that are common to a wide range of users. Financial statements prepared
in accordance with a financial reporting framework designed to meet the
common financial information needs of a wide range of users are referred to as
general purpose financial statements.
A6. In some cases, the financial statements will be prepared in accordance with
a financial reporting framework designed to meet the financial information needs
of specific users. Such financial statements are referred to as special purpose
financial statements. The financial information needs of the intended users will
determine the applicable financial reporting framework in these circumstances.
SA 800 discusses the acceptability of financial reporting frameworks designed to
meet the financial information needs of specific users.12
A7. Deficiencies in the applicable financial reporting framework that indicate
that the framework is not acceptable may be encountered after the audit

12 SA 800, “Special Considerations-Audits of Financial Statements Prepared in Accordance with

Special Purpose Frameworks”, paragraph 8.

9 SA 210
engagement has been accepted. When use of that framework is prescribed by
law or regulation, the requirements of paragraphs 19-20 apply. When use of that
framework is not prescribed by law or regulation, management may decide to
adopt another framework that is acceptable. When management does so, as
required by paragraph 16, new terms of the audit engagement are agreed to
reflect the change in the framework as the previously agreed terms will no longer
be accurate.
General purpose frameworks
A8. At present, there is no objective and authoritative basis that has been
generally recognised globally for judging the acceptability of general purpose
frameworks. In the absence of such a basis, financial reporting standards
established by organizations that are authorised or recognised to promulgate
standards to be used by certain types of entities are presumed to be acceptable
for general purpose financial statements prepared by such entities, provided the
organizations follow an established and transparent process involving
deliberation and consideration of the views of a wide range of stakeholders.
Examples of such financial reporting standards include:
 Accounting Standards issued by the Institute of Chartered Accountants of
India (ICAI) and/ or Accounting Standards, notified by the Central
Government by publishing the same as the Companies (Accounting
Standards) Rules, 2006, as may be applicable;
 Accounting Standards for Local Bodies issued by the Institute of Chartered
Accountants of India (ICAI);
 International Financial Reporting Standards (IFRSs) issued by the
International Accounting Standards Board; and
 International Public Sector Accounting Standards (IPSASs) issued by the
International Public Sector Accounting Standards Board.
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 regulation
A9. In accordance with paragraph 6(a), the auditor is required to determine
whether the financial reporting framework, to be applied in the preparation of the
financial statements, is acceptable. Appendix 2 contains guidance on
determining the acceptability of the financial reporting framework. In case of
some entities, law or regulation may prescribe the financial reporting framework
to be used in the preparation of general purpose financial statements. In the
absence of indications to the contrary, such a financial reporting framework is

SA 210 10
presumed to be acceptable for general purpose financial statements prepared by
such entities. In the event that the framework is not considered to be acceptable,
paragraphs 19-20 apply.
Agreement of the Responsibilities of Management (Ref: Para. 6(b))
A10. An audit in accordance with SAs is conducted on the premise that
management has acknowledged and understands that it has the responsibilities
set out in paragraph 6(b)13. In case of certain entities, such responsibilities may
be specified in the applicable law or regulation. In others, there may be little or no
legal or regulatory definition of such responsibilities. SAs do not override law or
regulation in such matters. However, the concept of an independent audit
requires that the auditor’s role does not involve taking responsibility for the
preparation of the financial statements or for the entity’s related internal control,
and that the auditor has a reasonable expectation of obtaining the information
necessary for the audit in so far as management is able to provide or procure it.
Accordingly, the premise is fundamental to the conduct of an independent audit.
To avoid misunderstanding, agreement is reached with management that it
acknowledges and understands that it has such responsibilities as part of
agreeing and recording the terms of the audit engagement in paragraphs 9-12.
A11. The way in which the responsibilities for financial reporting are divided
between management and those charged with governance will vary according to
the resources and structure of the entity and any relevant law or regulation, and
the respective roles of management and those charged with governance within
the entity. In most cases, management is responsible for execution while those
charged with governance have oversight of management. In some cases, those
charged with governance will have, or will assume, responsibility for approving
the financial statements or monitoring the entity’s internal control related to
financial reporting. In larger or public entities, a subgroup of those charged with
governance, such as an audit committee, may be charged with certain oversight
responsibilities.
A12. SA 580 requires the auditor to request management to provide written
representations that it has fulfilled certain of its responsibilities14. It may therefore
be appropriate to make management aware that receipt of such written
representations will be expected, together with written representations required
by other SAs and, where necessary, written representations to support other
audit evidence relevant to the financial statements or one or more specific
assertions in the financial statements.

13 SA 200, Paragraph A2.
14 SA 580, “Written Representations”, paragraphs 10-11.

11 SA 210
A13. Where management will not acknowledge its responsibilities, or agree to
provide the written representations, the auditor will be unable to obtain sufficient
appropriate audit evidence15. In such circumstances, it would not be appropriate
for the auditor to accept the audit engagement, unless law or regulation requires
the auditor to do so. In cases where the auditor is required to accept the audit
engagement, the auditor may need to explain to management the importance of
these matters, and the implications for the auditor’s report.
Preparation of the Financial Statements (Ref: Para. 6(b)(i))
A14. Most financial reporting frameworks include requirements relating to the
presentation of the financial statements; for such frameworks, preparation of the
financial statements in accordance with the financial reporting framework
includes presentation. In the case of a fair presentation framework the
importance of the reporting objective of fair presentation is such that the premise
agreed with management includes specific reference to fair presentation, or to
the responsibility to ensure that the financial statements will “give a true and fair
view” in accordance with the financial reporting framework.
Internal Control (Ref: Para. 6(b)(ii))
A15. Management maintains such internal control as it determines is necessary
to enable the preparation of financial statements that are free from material
misstatement, whether due to fraud or error. Internal control, no matter how
effective, can provide an entity with only reasonable assurance about achieving
the entity’s financial reporting objectives due to the inherent limitations of internal
control16.
A16. An independent audit conducted in accordance with the SAs does not act
as a substitute for the maintenance of internal control necessary for the
preparation of financial statements by management. Accordingly, the auditor is
required to obtain the agreement of management that it acknowledges and
understands its responsibility for internal control. However, the agreement
required by paragraph 6(b)(ii) does not imply that the auditor will find that internal
control maintained by management has achieved its purpose or will be free of
deficiencies.
A17. It is for management to determine what internal control is necessary to
enable the preparation of the financial statements. The term “internal control”
encompasses a wide range of activities within components that may be
described as the control environment; the entity’s risk assessment process; the

15 SA 580, paragraph A26.
16 SA 315, “Identifying and Assessing the Risks of Material Misstatement Through Understanding the

Entity and Its Environment,” paragraph A52.

SA 210 12
information system, including the related business processes relevant to financial
reporting, and communication; control activities; and monitoring of controls. This
division, however, does not necessarily reflect how a particular entity may
design, implement and maintain its internal control, or how it may classify any
particular component.17 An entity’s internal control (in particular, its accounting
books and records, or accounting systems) will reflect the needs of management,
the complexity of the business, the nature of the risks to which the entity is
subject, and relevant laws or regulation.
A18. In some cases, law or regulation may refer to the responsibility of
management for the adequacy of accounting books and records, or accounting
systems. For example, in case of listed companies under the Companies Act,
2013 in India, the directors are required to lay down internal financial controls to
be followed by the company and also ensure that they are adequate and operate
effectively. The illustrative format of the engagement letter for audit of financial
statements under the Companies Act, 2013 describes these responsibilities. See
Appendix I.18 In some other cases, general practice may assume a distinction
between accounting books and records or accounting systems on the one hand,
and internal control or controls on the other. As accounting books and records, or
accounting systems, are an integral part of internal control as referred to in
paragraph A17, no specific reference is made to them in paragraph 6(b)(ii) for
the description of the responsibility of management. To avoid misunderstanding,
it may be appropriate for the auditor to explain to management the scope of this
responsibility.
Additional Information (Ref: Para. 6(b)(iii)(b))
A19. Additional information that the auditor may request from management for
the purpose of the audit may include when applicable, matters related to other
information in accordance with SA 720(Revised). When the auditor expects to
obtain other information after the date of the auditor’s report, the terms of the
audit engagement may also acknowledge the auditor’s responsibilities relating to
such other information including, if applicable, the actions that may be
appropriate or necessary if the auditor concludes that a material misstatement of
the other information exists in other information obtained after the date of the
auditor’s report.
Considerations Relevant to Smaller Entities (Ref: Para. 6(b))
A20. One of the purposes of agreeing the terms of the audit engagement is to
avoid misunderstanding about the respective responsibilities of management and

17 SA 315, paragraph A57 and Appendix 1.
18 The underlined text has been added pursuant to the decision of the Council of ICAI taken at its

350th meeting held in February 2016.

13 SA 210
the auditor. For example, when a third party has assisted with the preparation of
the financial statements, it may be useful to remind management that the
preparation of the financial statements in accordance with the applicable financial
reporting framework remains its responsibility.
Agreement on Audit Engagement Terms
Agreeing the Terms of the Audit Engagement (Ref: Para. 9)
A21. The roles of management and those charged with governance in agreeing
the terms of the audit engagement for the entity depend on the governance
structure of the entity and relevant law or regulation.
Audit Engagement Letter or Other Form of Written Agreement19 (Ref: Para.
10-11)
A22. It is in the interests of both the entity and the auditor that the auditor sends
an audit engagement letter before the commencement of the audit to help avoid
misunderstandings with respect to the audit. In some entities, however, the
objective and scope of an audit and the responsibilities of management and of
the auditor may be sufficiently established by law, that is, they prescribe the
matters described in paragraph 10. Although in these circumstances paragraph
11 permits the auditor to include in the engagement letter only reference to the
fact that relevant law or regulation applies and that management acknowledges
and understands its responsibilities as set out in paragraph 6(b), the auditor may
nevertheless consider it appropriate to include the matters described in
paragraph 10 in an engagement letter for the information of management.
Form and Content of the Audit Engagement Letter
A23. The form and content of the audit engagement letter may vary for each
entity. Information included in the audit engagement letter on the auditor’s
responsibilities may be based on SA 200 20. Paragraphs 6(b) and 12 of this SA
deal with the description of the responsibilities of management. In addition to
including the matters required by paragraph 10, an audit engagement letter may
make reference to, for example:
● Elaboration of the scope of the audit, including reference to applicable
legislation, regulations, SAs, and ethical and other pronouncements of
professional bodies to which the auditor adheres.
● The form of any other communication of results of the audit engagement.

19 In the paragraphs that follow, any reference to an audit engagement letter is to be taken as a

reference to an audit engagement letter or other suitable form of written agreement.
20 SA 200, paragraph 3-9.

SA 210 14
● The requirement for the auditor to communicate key audit matters in the
auditor’s report in accordance with SA 70121.
● 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 though the audit is
properly planned and performed in accordance with SAs.
● Arrangements regarding the planning and performance of the audit,
including the composition of the audit team.
● The expectation that management will provide written representations (see
also paragraph A13).
● The agreement of management to make available to the auditor draft
financial statements and any accompanying other information in time to
allow the auditor to complete the audit in accordance with the proposed
timetable.
● 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 auditor’s report to the date the financial
statements are issued.
● The basis on which fees are computed and any billing arrangements.
● A request for management to acknowledge receipt of the audit engagement
letter and to agree to the terms of the engagement outlined therein.
● The fact that the audit process may be subjected to a peer review under the
Chartered Accountants Act, 1949.
A24. When the auditor is not required to communicate key audit matters, it may
be helpful for the auditor to make reference in the terms of the audit engagement
to the possibility of communicating key audit matters in the auditor’s report and,
in certain jurisdictions, it may be necessary for the auditor to include a reference
to such possibility in order to retain the ability to do so.
A25. When relevant, the following points could also be made in the audit
engagement letter:
● Arrangements concerning the involvement of other auditors and experts in
some aspects of the audit.
● Arrangements concerning the involvement of internal auditors and other
staff of the entity.
● Arrangements to be made with the predecessor auditor, if any, in the case
of an initial audit.

21 SA 701, “Communicating key audit matters in the independent auditor’s report”.

15 SA 210
● Any restriction of the auditor’s 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.
An example of an audit engagement letter is set out in Appendix 1.
Audits of Components
A26. When the auditor of a parent entity is also the auditor of a component, the
factors that may influence the decision whether to send a separate audit
engagement letter to the component include the following:
● Who appoints the component auditor;
● Whether a separate auditor’s 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 parent
entity.
Responsibilities of Management Prescribed by Law or Regulation (Ref: Para. 11-
12)
A27. If, in the circumstances described in paragraphs A23 and A29, the auditor
concludes that it is not necessary to record certain terms of the audit
engagement in an audit engagement letter, the auditor is still required by
paragraph 11 to seek the written agreement from management that it
acknowledges and understands that it has the responsibilities set out in
paragraph 6(b). However, in accordance with paragraph 12, such written
agreement may use the wording of the law or regulation if such law or regulation
establishes responsibilities for management that are equivalent in effect to those
described in paragraph 6(b).
A28. In case of certain entities, such as, Central/State governments and related
government entities (for example, agencies, boards, commissions), law or
regulation governing the operations of that entities generally mandate the
appointment of the auditor and commonly set out the auditor’s responsibilities
and powers, including the power to access an entity’s records and other
information. When law or regulation prescribes in sufficient detail the terms of the
audit engagement, the auditor may nonetheless consider that there are benefits
in issuing a fuller audit engagement letter than permitted by paragraph 11.
Recurring Audits (Ref: Para. 13)
A29. The auditor may decide not to send a new audit engagement letter or other
written agreement each period. However, the following factors may make it

SA 210 16
appropriate to revise the terms of the audit engagement or to remind the entity of
existing terms:
● Any indication that the entity misunderstands the objective and scope of 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 entity’s 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.
Acceptance of a Change in the Terms of the Audit Engagement
Request to Change the Terms of the Audit Engagement (Ref: Para. 14)
A30. A request from the entity for the auditor to change the terms of the audit
engagement may result from a change in circumstances affecting the need for
the service, a misunderstanding as to the nature of an audit as originally
requested or a restriction on the scope of the audit engagement, whether
imposed by management or caused by other circumstances. The auditor, as
required by paragraph 14, considers the justification given for the request,
particularly the implications of a restriction on the scope of the audit engagement.
A31. A change in circumstances that affects the entity’s requirements or a
misunderstanding concerning the nature of the service originally requested may
be considered a reasonable basis for requesting a change in the audit
engagement.
A32. In contrast, a change may not be considered reasonable if it appears that
the change relates to information that is incorrect, incomplete or otherwise
unsatisfactory. An example might be where the auditor is unable to obtain
sufficient appropriate audit evidence regarding receivables and the entity asks for
the audit engagement to be changed to a review engagement to avoid a qualified
opinion or a disclaimer of opinion.
Request to Change to a Review or a Related Service (Ref: Para. 15)
A33. Before agreeing to change an audit engagement to a review or a related
service, an auditor who was engaged to perform an audit in accordance with SAs

17 SA 210
may need to assess, in addition to the matters referred to in paragraphs A30-A32
above, any legal or contractual implications of the change.
A34. If the auditor concludes that there is reasonable justification to change the
audit engagement to a review or a related service, the audit work performed to
the date of change may be relevant to the changed engagement; however, the
work required to be performed and the report to be issued would be those
appropriate to the revised engagement. 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 audit
engagement, except where the audit engagement is changed to an
engagement to undertake agreed- upon procedures and thus reference to
the procedures performed is a normal part of the report.
Additional Considerations in Engagement Acceptance
Financial Reporting Standards Supplemented by Law or Regulation (Ref:
Para. 18)
A35. In case of some entities, law or regulation may supplement the financial
reporting standards established by an authorised or recognised standards setting
organization with additional requirements relating to the preparation of financial
statements. In such cases, the applicable financial reporting framework for the
purposes of applying the SAs encompasses both the identified financial reporting
framework and such additional requirements provided they do not conflict with
the identified financial reporting framework. This may, for example, be the case
when law or regulation prescribes disclosures in addition to those required by the
financial reporting standards or when they narrow the range of acceptable
choices that can be made within the financial reporting standards22.
Financial Reporting Framework Prescribed by Law or Regulation—Other
Matters Affecting Acceptance (Ref: Para. 19)
A36. Law or regulation may prescribe that the wording of the auditor’s opinion
use the phrases “present fairly, in all material respects” or “give a true and fair
view” in a case where the auditor concludes that the applicable financial
reporting framework prescribed by law or regulation would otherwise have been
unacceptable. In this case, the terms of the prescribed wording of the auditor’s
report are significantly different from the requirements of SAs (see paragraph
21).

22 SA 700(Revised), “Forming an Opinion and Reporting on Financial Statements”, paragraph 15.

SA 210 18
Auditor’s Report Prescribed by Law or Regulation (Ref: Para. 21)
A37. SAs require that the auditor shall not represent compliance with SAs unless
the auditor has complied with all of the SAs relevant to the audit23. When law or
regulation prescribes the layout or wording of the auditor’s report in a form or in
terms that are significantly different from the requirements of SAs and the auditor
concludes that additional explanation in the auditor’s report cannot mitigate
possible misunderstanding, the auditor may consider including a statement in the
auditor’s report that the audit is not conducted in accordance with SAs. The
auditor is, however, encouraged to apply SAs, including the SAs that address the
auditor’s report, to the extent practicable, notwithstanding that the auditor is not
permitted to refer to the audit being conducted in accordance with SAs.
A38. In case of certain entities, such as, Central/State governments and related
government entities (for example, agencies, boards, commissions), specific
requirements may exist within the legislation governing the audit mandate; for
example, the auditor may be required to report directly to a regulator or the
legislative body or the stakeholders if the entity attempts to limit the scope of the
audit.
Material Modifications to ISA 210, “Agreeing the Terms of
Audit Engagements”
Addition
Paragraph A8 of ISA 210 (A8 of SA 210) provides the examples of the financial
reporting standards, which can be used for the preparation and presentation of
general purpose financial statements. Since in India, financial reporting
standards, used for the preparation and presentation of financial statements, can
be ‘Accounting Standards issued by the Institute of Chartered Accountants of
India or Accounting Standards, notified under Companies (Accounting
Standards) Rules, 2006’ or ‘Accounting Standards for Local Bodies issued by the
Institute of Chartered Accountants of India (ICAI)’, these have been added in the
list of examples of financial reporting standards. References have accordingly
been changed.
Deletions
1. Paragraph A10 of the ISA 210 deals with situations where the entity
operates in a jurisdiction that does not have a standard setting organization or a

23 SA 200, paragraph 20.

19 SA 210
prescribed financial reporting framework. Since in India, this kind of situation
does not exist, paragraph A10 has been deleted. However, the reference to
Appendix 2, Determining Acceptability of General Purpose Frameworks, has
been shifted to paragraph A9.

2. Paragraph A29 of ISA 210(A28 of SA 210) deals with the condition where
the law or regulation governs the operations of public sector audits, and also
prescribes the public sector auditor’s responsibilities and powers. Paragraph A39
of ISA 210(A38 of SA 210) deals with the specific reporting requirements within
the legislation governing the audit which may mandate; for example, the auditor
may be required to report directly to a minister or the legislature or to public if the
entity attempts to limit the scope of the audit in case of public sector entities.
Since as mentioned in the “Preface to the Standards on Quality Control, Auditing,
Review, Other Assurance and Related Services”, the Standards issued by the
Auditing and Assurance Standards Board, apply equally to all entities,
irrespective of their form, nature and size, a specific reference to applicability of
the Standard to public sector entities has been deleted. However, since it is also
possible that such situations may also exist in case of certain non-public entities
pursuant to a requirement under the statute or regulation under which they
operate the spirit of Paragraphs A29 and A39 in ISA has been retained.

SA 210 20
 Appendix 1
(Ref: Paras. A23-A25)
Examples of an Audit Engagement Letter
Illustration 1:
The following is an example of an audit engagement letter for an audit of general
purpose financial statements prepared in accordance with Financial Reporting
Standards24 of a company registered under the Companies Act, 1956. This letter is
not authoritative but is intended only to be a guide that may be used in conjunction
with the considerations outlined in this SA. It will need to be varied according to
individual requirements and circumstances. It is drafted to refer to the audit of
financial statements for a single reporting period and would require adaptation if
intended or expected to apply to recurring audits (see paragraph 13 of this SA). It
may be appropriate to seek legal advice that any proposed letter is suitable.
***
To the Board of Directors of ABC Company Limited:25
[The objective and scope of the audit]
You26 have requested that we audit the financial statements of ABC Company
Limited, which comprise the Balance Sheet as at March 31st, 20X1, and the
Statement of Profit & Loss, and Cash Flow Statement for the year then ended,
and notes to the financial statements, including a summary of significant
accounting policies and other explanatory information. We are pleased to confirm
our acceptance and our understanding of this audit engagement by means of this
letter.
The objectives of our audit are to obtain reasonable assurance about whether
the financial statements as a whole are free from material misstatement, whether
due to fraud or error, and to issue an auditor’s report that includes our opinion.
Reasonable assurance is a high level of assurance, but is not a guarantee that
an audit conducted in accordance with Standards on Auditing (SAs) will always
detect a material misstatement when it exists. Misstatements can arise from
fraud or error and are considered material if, individually or in the aggregate, they
could reasonably be expected to influence the economic decisions of users taken
on the basis of these financial statements.

24 Refer footnote 4.
25 The addressees and references in the letter would be those that are appropriate in the
circumstances of the engagement, including the relevant jurisdiction. It is important to refer to the
appropriate persons – see paragraph A21.
26 Throughout this letter, references to “you”, “we”, “us”, “management”, “those charged with

governance” and “auditor” would be used or amended as appropriate in the circumstances.

21 SA 210
[The responsibilities of the auditor]
We will conduct our audit in accordance with Standards on Auditing (SAs) issued
by the Institute of Chartered Accountants of India (ICAI). Those Standards
require that we comply with ethical requirements. As part of an audit in
accordance with SAs, we exercise professional judgment and maintain
professional skepticism throughout the audit. We also:
• Identify and assess the risks of material misstatement of the financial
statements, whether due to fraud or error, design and perform audit
procedures responsive to those risks, and obtain audit evidence that is
sufficient and appropriate to provide a basis for our opinion. The risk of not
detecting a material misstatement resulting from fraud is higher than for one
resulting from error, as fraud may involve collusion, forgery, intentional
omissions, misrepresentations, or the override of internal control.
• Obtain an understanding of internal control relevant to the audit in order to
design audit procedures that are appropriate in the circumstances but not
for the purpose of expressing an opinion on the effectiveness of the
company’s internal control. However, we will communicate to you in writing
concerning any significant deficiencies in internal control relevant to the
audit of the financial statements that we have identified during the audit.
• Evaluate the appropriateness of accounting policies used and the
reasonableness of accounting estimates and related disclosures made by
management.
• Conclude on the appropriateness of management’s use of the going
concern basis of accounting and, based on the audit evidence obtained,
whether a material uncertainty exists related to events or conditions that
may cast significant doubt on the Company’s ability to continue as a going
concern. If we conclude that a material uncertainty exists, we are required
to draw attention in our auditor’s report to the related disclosures in the
financial statements or, if such disclosures are inadequate, to modify our
opinion. Our conclusions are based on the audit evidence obtained up to
the date of our auditor’s report. However, future events or conditions may
cause the Company to cease to continue as a going concern.
• Evaluate the overall presentation, structure and content of the financial
statements, including the disclosures, and whether the financial statements
represent the underlying transactions and events in a manner that achieves
fair presentation.
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 though the audit is properly planned
and performed in accordance with SAs.

SA 210 22
[The responsibilities of management and identification of the applicable
financial reporting framework (for purposes of this example it is assumed
that the auditor has determined that the provisions of the Companies Act,
1956 relating to responsibility of the Board of Directors be supplemented
by the descriptions in paragraph 6(b) of this SA).]
Our audit will be conducted on the basis that [management and, where
appropriate, those charged with governance]27 acknowledge and understand that
they have responsibility:
(a) For the preparation of financial statements that give a true and fair view in
accordance with the Financial Reporting Standards.28 This includes:
 the responsibility for the preparation of financial statements on a going
concern basis.
 the responsible for selection and consistent application of appropriate
accounting policies, including implementation of applicable accounting
standards along with proper explanation relating to any material
departures from those accounting standards.
 The responsibility for making judgements and estimates that are
reasonable and prudent so as to give a true and fair view of the state of
affairs of the entity at the end of the financial year and of the profit or
loss of the entity for that period.
(b) For such internal control as [management] determines is necessary to
enable the preparation of financial statements that are free from material
misstatement, whether due to fraud or error; and
(c) To provide us with:
(i) Access, at all times, to all information, including the books, account,
vouchers and other records and documentation, of the Company,
whether kept at the head office of the company or elsewhere, 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 the
purpose of the audit; and
(iii) Unrestricted access to persons within the entity from whom we

27 Use terminology as appropriate in the circumstances.
28 Or, if appropriate, “For the preparation and fair presentation of the financial statements in
accordance with the Financial Reporting Standards”.

23 SA 210
 determine it necessary to obtain audit evidence. This includes our
entitlement to require from the officers of the Company such
information and explanations as we may think necessary for the
performance of our duties as auditor.
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 also wish to invite your attention to the fact that our audit process is subject
to 'peer review' under the Chartered Accountants Act, 1949 to be conducted by
an Independent reviewer. The reviewer may inspect, examine or take abstract of
our working papers during the course of the peer review.
We look forward to full cooperation from your staff during our audit.
[Other relevant information]
[Insert other information, such as fee arrangements, billings29 and other specific
terms, as appropriate.]
[Reporting]
[Insert appropriate reference to the expected form and content of the auditor’s
report including, if applicable, the reporting on other information in accordance
with SA 720 (Revised).]
The form and content of our report may need to be amended in the light of 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 audit of the
financial statements including our respective responsibilities.

XYZ & Co.
Chartered Accountants
Firm’s Registration Number

(Signature)
(Name of the Member)
(Designation30)

29 For example, “Our fees will be billed as the work progresses”.
30 Partner or proprietor, as the case may be.

SA 210 24
Date :
Place :

Acknowledged on behalf of ABC Company by
……………………..
(Signature)
Name and Designation
Date

25 SA 210
Illustration 231
Example of an Audit Engagement Letter
Audit of Financial Statements under the Companies Act 2013
and the Rules Thereunder
(When Reporting u/s 143(3)(i) is Applicable)

Part A: Audit of Financial Statements
To, the Board of Directors of .................. (name of the Entity)
(Address)
Dear Sirs,
[The objective and scope of the audit]
I / We refer to the letter dated _________ informing me / us about my / our (re)
appointment as the auditors of the Company. You have requested that I / we
audit the financial statements of the Company as defined in Section 2(40) of the
Companies Act, 2013 (‘2013 Act’), for the financial year(s) beginning April 1,
20XX and ending March 31, 20YY32. The financial statements of the Company
include, where applicable, consolidated financial statements of the Company and
of all its subsidiaries, associate companies and joint ventures. I am / We are
pleased to confirm my / our acceptance and my / our understanding of this audit
engagement by means of this letter.
My / Our audit will be conducted with the objective of me / our expressing an
opinion if the aforesaid financial statements give the information required by the
2013 Act in the manner so required, and give a true and fair view in conformity
with the applicable accounting principles generally accepted in India, of the state
of affairs of the Company as at 31st March, 20YY, and its profit/loss and its cash
flows for the year ended on that date which, inter alia, includes reporting in
conjunction whether the Company has an adequate internal financial controls

31 This illustration has been added pursuant to decision of the Council of ICAI taken at its meeting

held in November 2014. The complete text of the Announcement in this regard has been published
in Paragraph ‘C’, “Announcements/Clarifications” of Section 1, “Announcements of the Council
regarding Status of Various Documents issued by the Institute of Chartered Accountants of India”,
included in Volume I.A of the Handbook.
32 An Engagement Letter may need to be entered into for each year of the period covered by the

Eligibility Letter issued by the auditor u/s 139 and the Appointment Letter received from the
Company, to supplement / update for any subsequent changes. This may be required because the
appointment would need to be ratified at each AGM u/s 139 of the 2013 Act.

SA 210 26
system over financial reporting in place and the operating effectiveness of such
controls. In forming my / our opinion on the financial statements, I / we will rely
on the work of branch auditors appointed by the Company and my / our report
would expressly state the fact of such reliance.33
Further, the objectives of our audit are to obtain reasonable assurance about
whether the financial statements as a whole are free from material misstatement,
whether due to fraud or error, and to issue an auditor’s report that includes our
opinion. Reasonable assurance is a high level of assurance, but is not a
guarantee that an audit conducted in accordance with Standards on Auditing
(SAs) will always detect a material misstatement when it exists. Misstatements
can arise from fraud or error and are considered material if, individually or in the
aggregate, they could reasonably be expected to influence the economic
decisions of users taken on the basis of these financial statements.
[The Responsibilities of the Auditor]
I / We will conduct my / our audit in accordance with the Standards on Auditing
(SAs), specified under Section 143(10) of the 2013 Act. Those Standards require
that I / we comply with ethical requirements. As part of an audit in accordance
with SAs, we exercise professional judgment and maintain professional
skepticism throughout the audit. We also:
 Identify and assess the risks of material misstatement of the financial
statements, whether due to fraud or error, design and perform audit
procedures responsive to those risks, and obtain audit evidence that is
sufficient and appropriate to provide a basis for our opinion. The risk of not
detecting a material misstatement resulting from fraud is higher than for one
resulting from error, as fraud may involve collusion, forgery, intentional
omissions, misrepresentations, or the override of internal control.
 Obtain an understanding of internal control relevant to the audit in order to
design audit procedures that are appropriate in the circumstances. Under
section 143(3)(i) of the Companies Act, 2013, we are also responsible for
expressing our opinion on whether the company has adequate internal
financial controls system in place and the operating effectiveness of such
controls.
 Evaluate the appropriateness of accounting policies used and the
reasonableness of accounting estimates and related disclosures made by
management.
 Conclude on the appropriateness of management’s use of the going

33 Delete sentence on branch auditors where not applicable.

27 SA 210
 concern basis of accounting and, based on the audit evidence obtained,
whether a material uncertainty exists related to events or conditions that
may cast significant doubt on the Company’s ability to continue as a going
concern. If we conclude that a material uncertainty exists, we are required
to draw attention in our auditor’s report to the related disclosures in the
financial statements or, if such disclosures are inadequate, to modify our
opinion. Our conclusions are based on the audit evidence obtained up to
the date of our auditor’s report. However, future events or conditions may
cause the Company to cease to continue as a going concern.
 Evaluate the overall presentation, structure and content of the financial
statements, including the disclosures, and whether the financial statements
represent the underlying transactions and events in a manner that achieves
fair presentation.
The terms of reference for my / our audit of internal financial controls over
financial reporting carried out in conjunction with our audit of the Company’s
financial statements will be as stated in the separate engagement letter for
conducting such audit and should be read in conjunction with this letter.
Because of the inherent limitations of an audit, including the possibility of
collusion or improper management override of controls, there is an unavoidable
risk that material misstatements due to fraud or error may occur and not be
detected, even though the audit is properly planned and performed in
accordance with the SAs. Also, projections of any evaluation of the internal
financial controls over financial reporting to future periods are subject to the risk
that the internal financial control over financial reporting may become inadequate
because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.
[The Responsibilities of management and identification of the applicable
financial reporting framework]
My / Our audit will be conducted on the basis that the Management and those
charged with governance (Audit Committee / Board) acknowledge and
understand that they have the responsibility:
(a) For the preparation of financial statements that give a true and fair view in
accordance with the applicable Financial Reporting Standards and other
generally accepted accounting principles in India. This includes:
 Compliance with the applicable provisions of the 2013 Act;

SA 210 28
  Proper maintenance of accounts and other matters connected
therewith;
 The responsibility for the preparation of the financial statements on a
going concern basis;
 The preparation of the annual accounts in accordance with, the
applicable accounting standards and providing proper explanation
relating to any material departures from those accounting standards;
 Selection of accounting policies and applying them consistently and
making judgments and estimates that are reasonable and prudent so
as to give a true and fair view of the state of affairs of the Company at
the end of the financial year and of the profit and loss of the Company
for that period;
 Taking proper and sufficient care for the maintenance of adequate
accounting records in accordance with the provisions of the 2013 Act
for safeguarding the assets of the Company and for preventing and
detecting fraud and other irregularities;
 Laying down internal financial controls to be followed by the Company
and that such internal financial controls are adequate and were
operating effectively; and
 Devising proper systems to ensure compliance with the provisions of
all applicable laws and that such systems were adequate and
operating effectively.
(b) Identifying and informing me / us of financial transactions or matters that
may have any adverse effect on the functioning of the Company.
(c) Identifying and informing me / us of:
 All the pending litigations and confirming that the impact of the
pending litigations on the Company’s financial position has been
disclosed in its financial statements;
 All material foreseeable losses, if any, on long term contracts
including derivative contracts and the accrual for such losses as
required under any law or accounting standards; and
 Any delay in transferring amounts, required to be transferred, to the
Investor Education and Protection Fund by the Company.

29 SA 210
(d) Informing me / us of facts that may affect the financial statements, of which
Management may become aware during the period from the date of my /
our report to the date the financial statements are issued.
(e) Identifying and informing me / us as to whether any director is disqualified
as on March 31, 20YY from being appointed as a director in terms of
Section 164 (2) of the 2013 Act. This should be supported by written
representations received from the directors as on March 31, 20YY and
taken on record by the Board of Directors.
(f) To provide me / us, inter alia, with:
(i) Access, at all times, to all information, including the books, accounts,
vouchers and other records and documentation of the Company,
whether kept at the Head Office or elsewhere, of which the
Management is aware that are relevant to the preparation of the
financial statements such as records, documentation and other
matters. This will include books of account maintained in electronic
mode;
(ii) Access, at all times, to the records of all the subsidiaries (including
associate companies and joint ventures as per Explanation to Section
129(3) of the 2013 Act) of the Company in so far as it relates to the
consolidation of its financial statements, as envisaged in the 2013 Act;
(iii) Access to reports, if any, relating to internal reporting on frauds (e.g.,
vigil mechanism reports etc.), including those submitted by cost
accountant or company secretary in practice to the extent it relates to
their reporting on frauds in accordance with the requirements of
Section 143(12) of the 2013 Act;
(iv) Additional information that I / we may request from the Management
for the purposes of my / our audit;
(v) Unrestricted access to persons within the Company from whom I / we
deem it necessary to obtain audit evidence. This includes my / our
entitlement to require from the officers of the Company such
information and explanations as I / we may think necessary for the
performance of my / our duties as the auditors of the Company; and
(vi) All the required support to discharge my / our duties as the statutory
auditors as stipulated under the Companies Act, 2013/ ICAI standards
on auditing and applicable guidance.

SA 210 30
As part of my / our audit process, I / we will request from the Management written
confirmation concerning representations made to me / us in connection with my /
our audit.
My / Our report prepared in accordance with relevant provisions of the 2013 Act
would be addressed to the shareholders of the Company for adoption of the
accounts at the Annual General Meeting. In respect of other services, my / our
report would be addressed to the Board of Directors. The form and content of my
/ our report may need to be amended in the light of my / our audit findings.
In accordance with the requirements of Section 143(12) of the 2013 Act, if in the
course of performance of my / our duties as auditor, I / we have reason to believe
that an offence involving fraud is being or has been committed against the
Company by officers or employees of the Company, I / we will be required to
report to the Central Government, in accordance with the rules prescribed in this
regard which, inter alia, requires me / us to forward my / our report to the Board
or Audit Committee, as the case may be, seeking their reply or observations, to
enable me / us to forward the same to the Central Government.
As stated above, given that I am / we are required as per Section 143(12) of the
Act to report on frauds, such reporting will be made in good faith and, therefore,
cannot be considered as breach of maintenance of client confidentiality
requirements or be subject to any suit, prosecution or other legal proceeding
since it is done in pursuance of the 2013 Act or of any rules or orders made
thereunder.
I / We also wish to invite your attention to the fact that our audit process is
subject to 'peer review' / ‘quality review’ under the Chartered Accountants Act,
1949. The reviewer(s) may inspect, examine or take abstract of my / our working
papers during the course of the peer review/quality review.
I / We may involve specialists and staff from our affiliated network firms to
perform certain specific audit procedures during the course of my / our audit.
In terms of Standard on Auditing (SA) 720(Revised), “The Auditor’s
Responsibilities Relating to Other Information” specified under Section 143(10) of
Companies Act, 2013, I / we request you to provide to me / us a Draft of the
Annual Report containing the audited financial statements so as to enable me /
us to read the same and communicate material inconsistencies, if any, with the
audited financial statements, before issuing the auditor’s report on the financial
statements.
{Other relevant information}

31 SA 210
{Insert Other information, such as fee arrangements, billings34 and other specific
terms, as appropriate.}
This letter should be read in conjunction with my / our letter dated ___ for the
Audit of Internal Financial Controls Over Financial Reporting under the 2013 Act,
in respect of which separate fees have been fixed/will be mutually agreed.
I / We look forward to full cooperation from your staff during my / our audit.
Please sign and return the attached copy of this letter to indicate your
acknowledgement of, and agreement with, the arrangements for my / our audit of
the financial statements including our respective responsibilities.
Yours faithfully,

(signature)
(Name of the Member)
(Designation)35
(Name of the Firm)
Date:
Place:
Copy to: Chairman, Audit Committee
Acknowledged on behalf of <<Name of the entity>>
Name and Designation: _________________
Date: ______________
________________________________________________________________
* delete as applicable

34 For example, “My / Our fees and out-of-pocket expenses for the audit of the financial statements

for the year have been fixed by the members at the Annual General Meeting at Rs.____________,
plus out-of-pocket expenses and indirect taxes/ will be mutually agreed between the Board of
Directors of the Company and me / ourselves.* I / We will bill as the work progresses. I / We will
notify you promptly of any circumstances I / we encounter that could significantly affect my / our
estimate of fees and discuss with you any additional fees, as necessary.”
35 Partner or proprietor, as the case may be.

SA 210 32
 Example of an Audit Engagement Letter
Audit of Financial Statements When Reporting u/s 143(3)(i) is
Applicable
Part B: Audit of Internal Financial Controls Over Financial Reporting
(Refer Illustrative Format Provided in Appendix 1 of the
Guidance Note on Audit of Internal Financial Controls Over Financial
Reporting)

33 SA 210
Illustration 336
Example of an Audit Engagement Letter
Audit of Financial Statements under the Companies Act 2013 and the
Rules Thereunder
(When Reporting u/s 143(3)(i) of the Companies Act, 2013 is Not
Applicable)

To,
The Board of Directors of .................. (name of the Entity)
(Address)
Dear Sirs,
[The objective and scope of the audit]
I / We refer to the letter dated _________ informing me / us about my / our (re)
appointment as the auditors of the Company. You have requested that I / we
audit the financial statements of the Company as defined in Section 2(40) of the
Companies Act, 2013 (‘2013 Act’), for the financial year(s) beginning April 1,
20XX and ending March 31, 20YY37. The financial statements of the Company
include, where applicable, consolidated financial statements of the Company and
of all its subsidiaries, associate companies and joint ventures. I am / We are
pleased to confirm my / our acceptance and my / our understanding of this audit
engagement by means of this letter.
My / Our audit will be conducted with the objective of me / our expressing an
opinion if the aforesaid financial statements give the information required by the
2013 Act in the manner so required, and give a true and fair view in conformity
with the applicable accounting principles generally accepted in India, of the state
of affairs of the Company as at 31st March, 20YY, and its profit/loss and its cash

36 This illustration has been added pursuant to decision of the Council of ICAI taken at its meeting

held in November 2014. The complete text of the Announcement in this regard has been published
in Paragraph ‘C’, “Announcements/Clarifications” of Section 1, “Announcements of the Council
regarding Status of Various Documents issued by the Institute of Chartered Accountants of India”,
included in Volume I.A of the Handbook.
37 An Engagement Letter may need to be entered into for each year of the period covered by the

Eligibility Letter issued by the auditor u/s 139 and the Appointment Letter received from the
Company, to supplement / update for any subsequent changes. This may be required because the
appointment of auditors would need to be ratified at each AGM u/s 139 of the 2013 Act.

SA 210 34
flows for the year ended on that date. In forming my / our opinion on the financial
0statements, I / we will rely on the work of branch auditors appointed by the
Company and my / our report would expressly state the fact of such reliance.38
Further, the objectives of our audit are to obtain reasonable assurance about
whether the financial statements as a whole are free from material misstatement,
whether due to fraud or error, and to issue an auditor’s report that includes our
opinion. Reasonable assurance is a high level of assurance, but is not a
guarantee that an audit conducted in accordance with Standards on Auditing
(SAs) will always detect a material misstatement when it exists. Misstatements
can arise from fraud or error and are considered material if, individually or in the
aggregate, they could reasonably be expected to influence the economic
decisions of users taken on the basis of these financial statements.
[The Responsibilities of the Auditor]
I / We will conduct my / our audit in accordance with the Standards on Auditing
(SAs), specified under Section 143(10) of the 2013 Act. Those Standards require
that I / we comply with ethical requirements. As part of an audit in accordance
with SAs, we exercise professional judgment and maintain professional
skepticism throughout the audit. We also:
 Identify and assess the risks of material misstatement of the financial
statements, whether due to fraud or error, design and perform audit
procedures responsive to those risks, and obtain audit evidence that is
sufficient and appropriate to provide a basis for our opinion. The risk of not
detecting a material misstatement resulting from fraud is higher than for one
resulting from error, as fraud may involve collusion, forgery, intentional
omissions, misrepresentations, or the override of internal control.
 Obtain an understanding of internal control relevant to the audit in order to
design audit procedures that are appropriate in the circumstances but not for
the purpose of expressing an opinion on the effectiveness of the company’s
internal control. However, we will communicate to you in writing concerning
any significant deficiencies in internal control relevant to the audit of the
financial statements that we have identified during the audit.
 Evaluate the appropriateness of accounting policies used and the
reasonableness of accounting estimates and related disclosures made by
management.
 Conclude on the appropriateness of management’s use of the going concern
basis of accounting and, based on the audit evidence obtained, whether a

38 Delete sentence on branch auditors where not applicable.

35 SA 210
 material uncertainty exists related to events or conditions that may cast
significant doubt on the Company’s ability to continue as a going concern. If
we conclude that a material uncertainty exists, we are required to draw
attention in our auditor’s report to the related disclosures in the financial
statements or, if such disclosures are inadequate, to modify our opinion. Our
conclusions are based on the audit evidence obtained up to the date of our
auditor’s report. However, future events or conditions may cause the
Company to cease to continue as a going concern.
 Evaluate the overall presentation, structure and content of the financial
statements, including the disclosures, and whether the financial statements
represent the underlying transactions and events in a manner that achieves
fair presentation.
Because of the inherent limitations of an audit, including the possibility of
collusion or improper management override of controls, there is an unavoidable
risk that material misstatements due to fraud or error may occur and not be
detected, even though the audit is properly planned and performed in
accordance with the SAs.
[The Responsibilities of management and identification of the applicable
financial reporting framework]
My / Our audit will be conducted on the basis that the Management and those
charged with governance (Audit Committee / Board) acknowledge and
understand that they have the responsibility:
(a) For the preparation of financial statements that give a true and fair view in
accordance with the applicable Financial Reporting Standards and other
generally accepted accounting principles in India. This includes:
 Compliance with the applicable provisions of the 2013 Act;
 Proper maintenance of accounts and other matters connected
therewith;
 The responsibility for the preparation of the financial statements on a
going concern basis;
 The preparation of the annual accounts in accordance with, the
applicable accounting standards and providing proper explanation
relating to any material departures from those accounting standards;
 Selection of accounting policies and applying them consistently and
making judgments and estimates that are reasonable and prudent so as
to give a true and fair view of the state of affairs of the Company at the

SA 210 36
 end of the financial year and of the profit and loss of the Company for
that period;
 Taking proper and sufficient care for the maintenance of adequate
accounting records in accordance with the provisions of the 2013 Act for
safeguarding the assets of the Company and for preventing and
detecting fraud and other irregularities;
 Laying down internal financial controls to be followed by the Company
and that such internal financial controls are adequate and were
operating effectively; and
 Devising proper systems to ensure compliance with the provisions of all
applicable laws and that such systems were adequate and operating
effectively.
(b) Identifying and informing me / us of financial transactions or matters that
may have any adverse effect on the functioning of the Company.
(c) Identifying and informing me / us of :
 All the pending litigations and confirming that the impact of the pending
litigations on the Company’s financial position has been disclosed in its
financial statements;
 All material foreseeable losses, if any, on long term contracts including
derivative contracts and the accrual for such losses as required under
any law or accounting standards; and
 Any delay in transferring amounts, required to be transferred, to the
Investor Education and Protection Fund by the Company.
(d) Informing me / us of facts that may affect the financial statements, of which
Management may become aware during the period from the date of my / our
report to the date the financial statements are issued.
(e) Identifying and informing me / us as to whether any director is disqualified as
on March 31, 20YY from being appointed as a director in terms of Section
164 (2) of the 2013 Act. This should be supported by written representations
received from the directors as on March 31, 20YY and taken on record by
the Board of Directors.
(f) To provide me / us, inter alia, with:
(i) Access, at all times, to all information, including the books, accounts,
vouchers and other records and documentation of the Company,

37 SA 210
 whether kept at the Head Office or elsewhere, of which the
Management is aware that are relevant to the preparation of the
financial statements such as records, documentation and other matters.
This will include books of account maintained in electronic mode;
(ii) Access, at all times, to the records of all the subsidiaries (including
associate companies and joint ventures as per Explanation to Section
129(3) of the 2013 Act) of the Company in so far as it relates to the
consolidation of its financial statements, as envisaged in the 2013 Act;
(iii) Access to reports, if any, relating to internal reporting on frauds (e.g.,
vigil mechanism reports etc.), including those submitted by cost
accountant or company secretary in practice to the extent it relates to
their reporting on frauds in accordance with the requirements of Section
143(12) of the 2013 Act;
(iv) Additional information that I / we may request from the Management for
the purposes of my / our audit;
(v) Unrestricted access to persons within the Company from whom I / we
deem it necessary to obtain audit evidence. This includes my / our
entitlement to require from the officers of the Company such information
and explanations as I / we may think necessary for the performance of
my / our duties as the auditors of the Company; and
(vi) All the required support to discharge my / our duties as the statutory
auditors as stipulated under the Companies Act, 2013/ ICAI standards
on auditing and applicable guidance.
As part of my / our audit process, I / we will request from the Management written
confirmation concerning representations made to me / us in connection with my /
our audit.
My / Our report prepared in accordance with relevant provisions of the 2013 Act
would be addressed to the shareholders of the Company for adoption of the
accounts at the Annual General Meeting. In respect of other services, my / our
report would be addressed to the Board of Directors. The form and content of my
/ our report may need to be amended in the light of my / our audit findings.
In accordance with the provisions of Section 143(12) and 143(13) of the 2013
Act, if in the course of performance of my / our duties as auditor, I / we have
reason to believe that an offence involving fraud is being or has been committed
against the Company by officers or employees of the Company, I / we will be

SA 210 38
required to report to the Central Government, in accordance with the rules
prescribed in this regard which, inter alia, requires me / us to forward my / our
report to the Board or Audit Committee, as the case may be, seeking their reply
or observations, to enable me / us to forward the same to the Central
Government. Such reporting will be made in good faith and, therefore, cannot be
considered as breach of maintenance of client confidentiality requirements or be
subject to any suit, prosecution or other legal proceeding since it is done in
pursuance of the 2013 Act or of any rules or orders made thereunder.
I / We also wish to invite your attention to the fact that my / our audit process is
subject to 'peer review' / ‘quality review’ under the Chartered Accountants Act,
1949. The reviewer(s) may inspect, examine or take abstract of my / our working
papers during the course of the peer review/quality review.
I / We may involve specialists and staff from my / our affiliated network firms to
perform certain specific audit procedures during the course of my / our audit.
In terms of Standard on Auditing (SA) 720(Revised), “The Auditor’s
Responsibilities Relating to Other Information” specified under Section 143(10) of
Companies Act, 2013, I / we request you to provide to me / us a Draft of the
Annual Report containing the audited financial statements so as to enable me /
us to read the same and communicate material inconsistencies, if any, with the
audited financial statements, before issuing the auditor’s report on the financial
statements.
{Other relevant information}
{Insert Other information, such as fee arrangements, billings39 and other specific
terms, as appropriate.}
I / We look forward to full cooperation from your staff during my / our audit.
Please sign and return the attached copy of this letter to indicate your
acknowledgement of, and agreement with, the arrangements for my / our audit of
the financial statements including our respective responsibilities.
Yours faithfully,

39 For example, “My / Our fees and out-of-pocket expenses for the audit of the financial statements

for the year have been fixed by the members at the Annual General Meeting at Rs.____________,
plus out-of-pocket expenses and indirect taxes/ will be mutually agreed between the Board of
Directors of the Company and me / ourselves.* I / We will bill as the work progresses. I / We will
notify you promptly of any circumstances I / we encounter that could significantly affect my / our
estimate of fees and discuss with you any additional fees, as necessary.”

39 SA 210
(signature)
(Name of the Member)
(Designation)40
(Name of the Firm)

Date:
Place:
Copy to: Chairman, Audit Committee
Acknowledged on behalf of <<Name of the entity>>
Name and Designation: _________________
Date: ______________
________________________________________________________________
* delete as applicable

40 Partner or proprietor, as the case may be.

SA 210 40
 Appendix 2
(Ref: Para. A9)
Determining the Acceptability of General Purpose
Frameworks
1. Acceptable financial reporting frameworks normally exhibit the following
attributes that result in information provided in financial statements that is useful
to the intended users:
(a) Relevance, in that the information provided in the financial statements is
relevant to the nature of the entity and the purpose of the financial
statements. For example, in the case of a business enterprise that prepares
general purpose financial statements, relevance is assessed in terms of the
information necessary to meet the common financial information needs of a
wide range of users in making economic decisions. These needs are
ordinarily met by presenting the financial position, financial performance
and cash flows of the business enterprise.
(b) Completeness, in that transactions and events, account balances and
disclosures that could affect conclusions based on the financial statements
are not omitted.
(c) Reliability, in that the information provided in the financial statements:
(i) Where applicable, reflects the economic substance of events and
transactions and not merely their legal form; and
(ii) Results in reasonably consistent evaluation, measurement,
presentation and disclosure, when used in similar circumstances.
(d) Neutrality, in that it contributes to information in the financial statements
that is free from bias.
(e) Understandability, in that the information in the financial statements is clear
and comprehensive and not subject to significantly different interpretation.
2. The auditor may decide to compare the accounting conventions to the
requirements of an existing financial reporting framework considered to be
acceptable. For example, the auditor may compare the accounting conventions
to IFRSs. For an audit of a small entity, the auditor may decide to compare the
accounting conventions to a financial reporting framework specifically developed
for such entities by an authorised or recognised standards setting organization.

41 SA 210
When the auditor makes such a comparison and differences are identified, the
decision as to whether the accounting conventions adopted in the preparation
and presentation of the financial statements constitute an acceptable financial
reporting framework includes considering the reasons for the differences and
whether application of the accounting conventions, or the description of the
financial reporting framework in the financial statements, could result in financial
statements that are misleading.
3. A conglomeration of accounting conventions devised to suit individual
preferences is not an acceptable financial reporting framework for general
purpose financial statements. Similarly, a compliance framework will not be an
acceptable financial reporting framework, unless it is generally accepted in the
industry to which the entity belongs by preparers and users.

SA 210 42