AGREEING THE TERMS OF AUDIT ENGAGEMENT
CONTEMPORARY AUDITING
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OBJECTIVE
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THE OBJECTIVE OF THE AUDITOR IS TO ACCEPT OR
CONTINUE AN AUDIT AGREEMENT ONLY WHEN THE BASIS UPON WHICH IT IS TO BE PERFORMED HAS BEEN AGREED THROUGH:-
1. ESTABLISHING
WHETHER THE PRECONDITION FOR AN AUDIT ARE PRESENT AND
2. CONFIRMING
THAT THERE IS COMMON UNDERSTANDING BETWEEN AUDITOR AND MANAGEMENT AND WHERE
APPROPRIATE THOSE CHARGED WITH GOVERNANCE OF THE TERMS OF THE AUDIT ENGAGEMENT.
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PRECONDITION FOR AN AUDIT
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THE AUDITOR SHALL :
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DETERMINE WHETHER THE FINANCIAL REPORTING
FRAMEWORK TO BE APPLIED IN THE PREPARATION OF THE FINANCIAL STATEMENT IS
ACCEPTABLE AND
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OBTAIN THE AGREEMENT OF MANAGEMENT THAT IT
ACKNOWLEDGES AND UNDERSTAND ITS
1. FOR THE PREPARATION OF THE FINANCIAL STATEMENT IN ACCORDANCE WITH THE APPLICABLE
FINANCIAL REPORTING FRAMEWORK WHERE RELEVANT FOR THEIR FAIR
2. FOR SUCH
INTERNAL CONTROL AS MANAGEMENT DETERMINES IS NECESSARY TO ENABLE THE PREPARATION OF THE FINANCIAL STATEMENTS THAT ARE FREE FROM MATERIAL MISSTATEMENTS WHETHER
DUE TO FRAUD OR ERROR
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TO PROVIDE THE AUDITOR WITH:
1. 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
2. ADDITIONAL
INFORMATION THAT THE AUDITOR MAY REQUEST FROM MANAGEMENT FOR THE PURPOSE OF THE
AUDIT
3. UNRESTRICTED
ACCESS TO PERSONS WITH IN THE ENTITY FROM WHOM THE AUDITOR DETERMINE IT
NECESSARY TO OBTAIN AUDIT EVIDENCE
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LIMITATION ON SCOPE PRIOR TO AUDIT ENGAGEMENT
ACCEPTANCE
1. IF THE
MANAGEMENT IMPOSES LIMITATION ON THE
SCOPE OF THE AUDITOR
2. AUDITOR
BELIEVE SUCH LIMITATION WILL RESULT IN AUDITOR DISCLAIMING AN OPINION ON THE
FINANCIAL STATEMENTS,THE AUDITOR SHALL NOT ACCEPT SUCH A LIMITED ENGAGEMENT
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OTHER FACTORS AFFECTING AUDIT ENGAGEMENT
ACCEPTANCE
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IF THE PRECONDITIONS FOR AN AUDIT IS NOT
PRESENT,
1. DISCUSS THE
MATTER WITH THE MANAGEMENT
2. UNLESS
REQUIRED BY LAW OR REGULATIONS TO DO SO THE AUDITOR SHALL NOT ACCEPT THE PROPOSED AUDIT ENGAGEMENT
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AGREEMENT ON AUDIT ENGAGEMENT TERMS
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AGREE WITH THE TERMS OF AUDIT ENGAGEMENT WITH
MANAGEMENT OR THOSE CHARGED WITH GOVERNANCE
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AGREED TERMS RECORDED IN AUDIT ENGAGEMENT LETTER:
1. THE OBJECTIVE
AND SCOPE OF THE AUDIT OF THE FINANCIAL STATEMENT
2. THE RESPONSIBILITY OF THE AUDITOR
3. THE RESPONSIBILITY OF THE MANAGEMENT
4. IDENTIFICATION
OF THE APPLICABLE FINANCIAL REPORTING FRAMEWORK
5. EXPECTED FORM
AND CONTENT OF ANY REPORT BY THE AUDITOR
6. IF THE LAW OR
REGULATION PRESCRIBE IN SUFFICIENT DETAIL THE TERMS OF THE AUDIT THE AUDITOR
NEED NOT
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RECURRING AUDIT
1. ASSESS
WHETHER CIRCUMSTANCES REQUIRE THE TERMS OF THE AUDIT ENGAGEMENT TO BE REVISED
2. WHETHER THERE
IS NEED TO REMIND THE ENTITY OF THE EXISTING TERMS OF THE AUDIT ENGAGEMENT
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ACCEPTANCE OF A CHANGE IN THE TERMS OF THE
AUDIT ENGAGEMENT
1. ACCEPTING
CHANGES IN TERMS OF AUDIT ENGAGEMENT WHEN THERE IS REASONABLE JUSTIFICATION FOR
DOING IT
2. IF PRIOR TO
COMPLETING THE AUDIT ENGAGEMENT THE AUDITOR IS REQUESTED TO CHANGE THE AUDIT
ENGAGEMENT THAT CONVEYS A LOWER LEVEL OF
ASSURANCE,THE AUDITOR SHALL DETERMINE WHETHER THERE IS REASONABLE JUSTIFICATION
FOR DOING SO
3. AUDITOR AND
MANAGEMENT SHOULD AGREE ON RECORD THE NEW TERMS OF THE ENGAGEMENT LETTER OR
OTHER SUITABLE FORM OF WRITTEN AGREEMENT
4.
ACCEPTANCE OF A CHANGE IN THE TERMS OF THE
AUDIT ENGAGEMENT
5. IF THE
AUDITOR IS UNABLE TO AGREE TO A CHANGE IN THE TERMS OF THE ENGAGEMENT AND IS
NOT PERMITTED BY THE MANAGEMENT TO CONTINUE THE ORIGINAL AUDIT ENGAGEMENT THE
AUDITOR SHALL :-
6. WITHDRAW FROM
THE ENGAGEMENT AND
7. DETERMINE
WHETHER THERE IS ANY OBLIGATION EITHER CONTRACTUAL OR OTHERWISE TO REPORT THE
CIRCUMSTANCES TO OTHER PART IS SUCH AS THOSE CHARGED WITH GOVERNANCE ,OWNERS AND
REGULATORS.
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ADDITIONAL CONSIDERATIONS IN ENGAGEMENT
ACCEPTANCE
1. FINANCIAL
REPORTING STANDARDS SUPPLEMENTED BY LAW OR REGULATION:
2. DETERMINE
WHETHER THERE ARE ANY CONFLICT BETWEEN
THE FINANCIAL REPORTING STANDARD AND THE ADDITIONAL
3. IF SUCH
CONFLICTS EXIST,THE AUDITOR SHALL DISCUSS WITH THE MGMT THE NATURE OF THE
ADDITIONAL REQUIREMENTS AND SHALL AGREE WHETHER :-
1. ADDITIONAL REQUIREMENT CAN BE MET THROUGH ADDITIONAL DISCOURSES IN THE FINANCIAL STATEMENTS
2. THE
DESCRIPTION OF THE APPLICABLE FINANCIAL REPORTING FRAMEWORK IN THE FINANCIAL
STATEMENTS CAN BE AMENDED ACCORDINGLY
3.
IF NEITHER OF THE ABOVE ACTION IS POSSIBLE,THE
AUDITOR SHALL DETERMINE WHETHER IT WILL BE NECESSARY TO MODIFY THE AUDITOR’S
OPINION
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FINANCIAL REPORTING FRAMEWORK BY LAW OR
REGULATION– OTHER MATTERS AFFECTING ACCEPTANCE
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IF THE AUDITOR HAS DETERMINED THAT THE
FINANCIAL REPORTING FRAMEWORK PRESCRIBED BY LAW OF REGULATIONS WOULD BE UNACCEPTABLE
BUT FOR THE FACTS THAT IT IS PRESCRIBED BY LAW OR REGULATIONS,THE AUDITOR SHALL
ACCEPT THE AUDIT ENGAGEMENT ONLY IF THE FOLLOWING CONDITIONS ARE PRESENT:
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MANAGEMENT AGREES TO PROVIDE ADDITIONAL
DISCOURSES IN THE FINANCIAL STATEMENTS REQUIRED TO AVOID THE FINANCIAL
STATEMENTS BEING MISLEADING
• RECOGNIZED IN THE TERMS OF THE AUDIT ENGAGEMENT
THAT:-
- THE AUDITOR;S
REPORTS ON THE FINANCIAL STATEMENTS WILL INCORPORATE ON EMPHASIS OF MATTER
PARAGRAPH,DRAWING USER’S ATTENTION TO ADDITIONAL DISCLOSURES
- UNLESS THE
AUDITOR IS REQUIRED BY LAW OR REGULATIONS 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 REPORTING FRAMEWORK,THE AUDITOR’S OPINION ON THE FINANCIAL STATEMENT WILL NOT INCLUDE SUCH PHRASES
- IF THE
CONDITIONS OUTLINED IN PARAGRAPH ABOVE ARE NOT PRESENT THE AUDITOR IS
REQUIRED BY LAW OR REGULATIONS TO UNDERTAKE THE AUDIT ENGAGEMENT THE
AUDITOR SHALL
- EVALUATE THE
EFFECT OF THE MISLEADING NATURE OF THE FINANCIAL STATEMENTS ON THE AUDITOR'S REPORT
- INCLUDE
APPROPRIATE REFERENCE TO THIS MATTER IN THE TERMS OF THE ENGAGEMENT
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AUDITOR’S REPORT PRESCRIBED BY LAW OR
REGULATION
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IN SOME CASES.THE LAW OR REGULATIONS APPLICABLE
TO ENTITY PRESCRIBES THE LAYOUT OF THE AUDITOR’S REPORT IN A FORM OR IN TERMS
THAT ARE SIGNIFICANTLY DIFFERENT FROM THE REQUIREMENTS OF SA. THEN AUDITOR SHALL
EVALUATE :
- WHETHER USERS
MIGHT UNDERSTAND THE ASSURANCE OBTAINED FROM THE AUDIT OF THE FINANCIAL
STATEMENT AND IF SO
- WHETHER
ADDITIONAL EXPLANATION IN THE AUDITOR’S REPORT CAN MITIGATE
3. IF THE
AUDITOR CONCLUDES THAT THE ADDITIONAL EXPLANATION IN THE AUDITOR’S REPORTS CAN
NOT MITIGATE THE POSSIBLE MISUNDERSTANDING,THE AUDITOR SHALL NOT ACCEPT THE
AUDIT ENGAGEMENT UNLESS REQUIRED BY LAW OR REGULATIONS TO DO SO
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