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    Engagement Letter (ISA 210) 2020

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    Noman Anser
    An engagement letter is a formal agreement between an external auditor and client that defines the terms of an audit. It documents the objective and scope of the audit, management and auditor responsibilities, and the form of any reports. Key contents include the audit objective, management's responsibility for financial statements, and the auditor's responsibility to express an opinion. A new engagement letter may be appropriate for recurring audits under circumstances like a change in management, business nature or size, or legal/regulatory requirements.

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    Engagement Letter (ISA 210) 2020

    Uploaded by

    Noman Anser
    325 views2 pages
    An engagement letter is a formal agreement between an external auditor and client that defines the terms of an audit. It documents the objective and scope of the audit, management and auditor responsibilities, and the form of any reports. Key contents include the audit objective, management's responsibility for financial statements, and the auditor's responsibility to express an opinion. A new engagement letter may be appropriate for recurring audits under circumstances like a change in management, business nature or size, or legal/regulatory requirements.

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    ISA 2020

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    An engagement letter is a formal agreement between an external auditor and client that defines the terms of an audit. It documents the objective and scope of the audit, management and auditor responsibilities, and the form of any reports. Key contents include the audit objective, management's responsibility for financial statements, and the auditor's responsibility to express an opinion. A new engagement letter may be appropriate for recurring audits under circumstances like a change in management, business nature or size, or legal/regulatory requirements.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    325 views2 pages

    Engagement Letter (ISA 210) 2020

    Uploaded by

    Noman Anser
    An engagement letter is a formal agreement between an external auditor and client that defines the terms of an audit. It documents the objective and scope of the audit, management and auditor responsibilities, and the form of any reports. Key contents include the audit objective, management's responsibility for financial statements, and the auditor's responsibility to express an opinion. A new engagement letter may be appropriate for recurring audits under circumstances like a change in management, business nature or size, or legal/regulatory requirements.

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    KnS School of Business Studies

    ACCA F8 and CA CAF 9 (Audit & Assurance)

    ENGAGEMENT LETTER (ISA 210)


    PURPOSE OF ENGAGEMENT LETTER (Importance / Benefits)

    Engagement letter is a formal written agreement of the terms and conditions between the external
    auditor and the client.
    The auditor and the client should agree on the terms of the engagement before the audit commences.
    It is in the interest of both client and auditor that the auditor sends an engagement letter, preferably
    before the commencement of the engagement, to help in avoiding misunderstanding/potential for
    argument with respect to the engagement.
    The engagement letter documents and confirms the auditor’s acceptance of the appointment, the
    objective and scope of the audit, the extent of the auditor’s responsibilities to the client and the form
    of any reports.
    The agreed terms must be in writing and will take the form of a Formal engagement letter
    (it is written on Audit firm’s letter head duly acknowledged by Client as a confirmation to their
    understanding of the same …..)

    CONTENTS OF an ENGAGEMENT LETTER


    Please Learn!
    1. The objective of the audit of financial statements.
    2. Scope of an External audit.
    3. Management’s responsibility for the preparation financial statements
    4. Management’s responsibility for making judgments and estimates that are reasonable
    and prudent so as to give a true and fair view of the entities state of affairs and working
    results.
    5. External auditors’ responsibility for expressing reasonable assurance. (Already covered)
    6. The fact that because of the test nature and other inherent limitations of an audit,
    together with the inherent limitations of an internal control, there is an unavoidable risk
    that even some material misstatement may remain undiscovered.
    7. Unrestricted access to whatever records, documentation and other information requested
    by the auditor.
    8. Description of any other letters/reports the auditor expects to issue to the audit client.
    (Management Letter – M.L or any other report as agreed by the audit client)

    __________________________________________________________________________

    9. Basis on which audit fees will be determined. (based on the number of hours to be
    worked at the audit client)

    __________________________________________________________________________

    Page 1 of 2 Prepared by M.Sajid Kapadia (ACA, ACCA, APFA)


    KnS School of Business Studies
    ACCA F8 and CA CAF 9 (Audit & Assurance)
    10. Arrangements regarding the planning and performance of the audit. (will be covered in
    ISA 300)
    11. Arrangements concerning the involvement of internal auditors and other client staff.
    12. Arrangements to be made with the predecessor auditor, in the case of an initial audit
    (initial audit means where last year audit was conducted by another auditor / audit firm)
    Example from video lecture

    ___________________________________________________________________________

    ___________________________________________________________________________

    13. Any restriction of the auditor’s liability when such possibility exists.

    __________________________________________________________________________

    Extra Point:

    Provision of all necessary information to be provided by Management including


    management representations (ISA 580 – will be discussed later)

    RECURRING AUDITS (The audit that is done year after year)

    In the case of recurring audits, the auditor should consider whether circumstances require the terms
    of the engagement to be revised and whether there is a need to remind the client of the existing terms
    of the engagement. The auditor may decide not to send a new engagement letter every year.

    However, under the following circumstances, a new/revised engagement letter MAY be


    appropriate:

    • Any indication that the client misunderstands the objective and scope of the
    engagement.
    • Any revision of terms of the engagement or introduction of special terms.
    (scope widened or any special requests by the client increasing the audit work)
    • A recent change of senior management or board of directors, or in ownership.
    (New CFO)
    • A significant change in the nature or size of the client’s business.
    (Subsidiary acquired)
    • Any new significant legal/regulatory/Financial reporting framework/other
    requirement (Engagement letter required every year)
    • Change in ownership. (Takeover by Parent company)

    Page 2 of 2 Prepared by M.Sajid Kapadia (ACA, ACCA, APFA)

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