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SA 210: Agreeing to the terms of the Audit Engagement

SA 210: Agreeing to the terms of the Audit engagement

This standard deals with the auditor’s responsibility in agreeing the terms of audit engagement with management and those charged with governance (also known as TCWG).


The basic objective of the auditor is to accept or continue an audit engagement only when the basis upon which is to be performed has been agreed through,

  1. Establishing whether the preconditions for the audit are present.
  2. Confirming that there is common understanding with auditor and management or those charged with governance of the terms of audit engagement.

Engagement Letter

Engagement letter is a letter, written by the auditor to the client setting out the scope and details of audit and the client is required to confirm the same. Audit engagement letter will give information and will set out the terms and conditions of audit engagement.

Preconditions for an audit

In order to establish whether preconditions for an audit are present, the auditor shall:

  1. Determine whether the financial reporting framework to be applied in preparation of the financial statements is acceptable.
  2. Obtain an agreement from the management that it acknowledges and understands its responsibility.


Management refers to those who carry out the major activities of the organisation. Responsibilities of auditor include:

  1.  To prepare financial statements as per financial reporting framework.
  2. To maintain the books of accounts.
  3. To design, implement and maintain internal controls system.
  4. To safeguard assets of the entities.
  5. To provide all information and explanation to the auditor.

Limitation on scope of audit engagement

Auditor shall not accept such a limited engagement as an audit engagement unless permitted by law or regulation to do so.

Recurring audits

In case of recurring audits, auditor should assess whether the circumstances require the terms of audit engagement to be revised and whether there is a need to the entity of the existing terms of audit engagements.

However, auditor will send engagement letter in the following circumstances:

  1. When there is change in ownership.
  2. When there is change in senior management.
  3. Change in reporting requirements.
  4. Change in law or regulations.

Acceptance of change in terms of audit engagement

  1. The auditor shall not agree to change in audit engagement, unless there is reasonable justification for doing so.
  2. If prior to completing the audit, auditor is requested to change the audit engagement to the engagement that conveys lower level of assurance, the auditor shall determine whether there is a reasonable justification for doing so.
  3. If the terms of audit engagement are changes, the auditor along with the management will record the existing terms of an audit engagement.
  4. If auditor is enable to agree to a change in terms of audit engagement and is not permitted by law to continue with original engagement, the auditor may withdraw from such engagement where possible under applicable law or regulation.

Example of an Audit Engagement letter


The Board of Directors


With reference to your letter dated _____, we would like to inform you that we are pleased to conduct the audit of financial statements comprising of:

1. Balance sheet as at_______

2. Statement of profit and loss account for the period ended.

3. Cash flow statements and

4. Notes to accounts.

Our responsibility is to give an opinion on financial statements. We conduct audit as per the standards of auditing issued by the Institute of Chartered Accountants of India. Those standards require that we comply ethical requirements and plan and perform audit to obtain reasonable assurance that financial statements are free from material misstatements. Our audit involves in obtaining sufficient and appropriate evidence, evaluating the internal control systems and usage of sampling technique wherever required.

We would like to bring to your attention that management is responsible for:

  1. To prepare the financial statements as per financial reporting framework.
  2. To safeguard the assets of the entity.
  3. Prepare financial statements on going concern basis.
  4. To design, implement and maintain internal control systems.
  5. To maintain the books the accounts.
  6. To provide all information and explanation to the auditor.

Our audit process will be subject to peer review as per the requirements of ICAI. The reviewer may inspect, examine and get abstract of working papers.

Fees charged will be ___/-, and service tax will be chargeable at the applicable rate.

If all the terms and conditions are acceptable, please sign and send a copy back to us expecting your full co-operation for completing your audit.


Membership number:

Firm registration number:



Client’s signature:

SA 210: Agreeing to the terms of the Audit engagement

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