Page 469 - CA Final PARAM Digital Book.

• Any indication that the entity misunderstands the objective and scope of the audit.
(E.g. They ask for Fraud Report / Compliance Report / Tax Report / Fixed Asset
assessment report etc.)

• Changes from Auditor Side: - Terms of Audit / Reporting Requirements.
• Any revised or special terms of the audit engagement. (E.g., Separate Branch
Auditors / Use of CAAT / Use of Expert etc. which are justified)
• A change in other reporting requirements. (E.g., Reporting on Internal Financial
Control)

QNO Preconditions for an audit- Old Course - (N19R)
3.050 TITANIUM CNO - SA210.020 / SA210.040 New Course-(N19R)

"Mr. Ram Kapoor, Chartered Accountant, has been appointed as the statutory auditor by XYZ Private Limited
for the audit of their financial statements for the year 2018-19. The company has mentioned in the audit
terms that they will not be able to provide internal audit reports to Mr. Ram during the course of audit.

Further, company also imposed some limitation on scope of Mr. Ram.
What are the preconditions Mr. Ram should ensure before accepting/ refusing the proposal? Also
advise, whether Mr. Ram should accept the proposed audit engagement?"
Answer (Before asking any information & thinking about acceptance & continuance as per SQC 1 & SA 200,
these conditions should be satisfied)

➢ Preconditions of an audit
• Acceptable FRF: - The use by management of an acceptable financial reporting framework (Exp:-
Reliable / Relevant etc) in the preparation of the financial statements and

• Agreement: - the agreement of management and, where appropriate, those charged with
governance to the premise on which an audit is conducted.
(Exp:- Management should agree and take responsibility of financial reporting)

➢ Auditor’s Responsibility to Check 2 Conditions

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

• Acceptable FRF: -
Determine whether the financial reporting framework to be applied in the preparation of the
financial statements is acceptable; and

• Agreement: -
Obtain the agreement of management that it acknowledges and understands its responsibility:
• Preparation of Financial Statements
For the preparation of the financial statements in accordance with the applicable financial
reporting framework, including where relevant their fair presentation.

• Internal Control System
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

• Information to Auditor
To provide the auditor with:
o 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.

o Additional information that the auditor may request from management for the
purpose of the audit; and

o Unrestricted access to persons within the entity from whom the auditor
determines it necessary to obtain audit evidence.

➢ Don’t Accept Assignment
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