Page 468 - CA Final PARAM Digital Book.

management would like to understand that as per SA 210 (auditing standard referred to by the auditors),
if the agreed terms of the engagement shall be recorded in an engagement letter or other suitable form of
written agreement, what should be included in terms of agreed audit engagement letter?
Answer Part I -- Relevant Standards & Laws
▪ SA 210, Agreeing the Terms of Audit Engagements

Part II -- Requirements of Relevant Standards & Laws
➢ As per SA 210 Agreeing the Terms of Audit Engagement
The auditor shall agree the terms of the audit engagement with management or those charged with
governance, as appropriate. 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:
• The objective and scope of the audit of the financial statements.
• The responsibilities of management.
• Identification of the applicable financial reporting framework for the preparation of the
financial statements; and
• The responsibilities of the auditor.
• 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.
Part III -- Facts
➢ In the given scenario, MEA Limited appointed Mr. X, Mr. Y and Mr. Z, as its joint auditors for the year
2019-20 and issued engagement letter to all of them. The engagement letter contains the details on
objective and scope of audit, responsibilities of auditor, identification of framework applicable and
reference to expected form and content of report from all three joint auditors.
Part IV -- Conclusion
➢ However, engagement letter issued by MEA Ltd. Does not specify the responsibilities of management,
whereas as per SA 210, it should also specify responsibilities of management.

QNO Revision of Engagement Letter Old Course - (M13E,P17M,M18M,N20E)
3.000 TITANIUM CNO - SA210.080

R & Co, a firm of Chartered Accountants have not revised the terms of engagements and obtained
confirmation from the clients, for last 5 years despite changes in business and professional environment.
Please elucidate the circumstances that may warrant the revision in terms of engagement.
Answer Part I -- Relevant Standards & Laws
▪ SA 210, Agreeing the Terms of Audit Engagements
Part II -- Requirements of Relevant Standards & Laws
➢ Not Required Sending new EL each period no required. Its Auditor’s Decision
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 appropriate to revise the terms of the audit
engagement or to remind the entity of existing terms:

➢ Factors Affecting Decision
• External Changes: - Legal & Regulatory / FRF.
• A change in legal or regulatory requirements. (New company act / GST)
• A change in the financial reporting framework adopted in the preparation of the
financial statements. (Ind AS)
• Changes from Management Side: - Nature, Size of Business / Ownership / Senior
Management / Indications of Misunderstanding.
• A significant change in nature or size of the entity’s business. (E.g. Started
manufacturing along with trading and now turnover has increased 3 times as
compared to last year)
• A significant change in ownership. (E.g., Takeover from other business group,
pantaloons taken from Biyani to Aditya Birla Group)
• A recent change of senior management. (E.g., MD / CEO / CFO are replaced)

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