Page 341 - CA Inter Audit PARAM

CA Ravi Taori

QNO Pre-Conditions for Audit Old Course -- (M21R/M22M)
210.02 Bhaskar CNO SA210.020 New Course -- (M24R)
Explain preconditions for an audit as per SA 210. Discuss how would an auditor proceed to establish the
presence of pre-conditions for an audit.
OR
CA X has been offered audit of financial statements of TDK Industries, a partnership firm. Prior to
accepting proposed offer, he insists upon obtaining an agreement of management regarding

acknowledgment of its responsibility of having a proper process in place to ensure that financial
statements prepared are free from material misstatements. However, management is of the view that it
is auditor’s duty to detect material misstatements in financial statements and such an insistence by
auditor is totally uncalled for. Whose view is proper? Also discuss reasons for arriving at your conclusion.
What should be likely proper course of action for CA X in above situation?
Answer As per SA 210 “Agreeing the Terms of Audit Engagements”, preconditions for an audit may be defined
as the use by management of an acceptable financial reporting framework in the preparation of the
financial statements and the agreement of management and, where appropriate, those charged with
governance to the premise on which an audit is conducted.

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

(a) Determine whether the financial reporting framework is acceptable; and

(b) Obtain the agreement of management that it acknowledges and understands its responsibility:

(i) For the preparation of the financial statements in accordance with the applicable financial
reporting framework;
(ii) For the internal control as management considers necessary; and
(iii) To provide the auditor with:

➢ Access to all information such as records, documentation and other matters;
➢ Additional information that the auditor may request from management for the
purpose of the audit; and
➢ Unrestricted access to persons within the entity from whom the auditor
determines it necessary to obtain audit evidence.

Engagement Letter - Master Answer- Old Course -- (P16M/M17E/M19R)
QNO
210.03 Purpose & Contents New Course -- (SM25/M24M/S24E/J25M)
Bhaskar CNO SA210.060
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. Who gives engagement letter to whom
and what is included in such a letter?
OR
CA Paras has accepted audit of financial statements of an entity. According to the Standards on Auditing,
the auditor is required to send an audit engagement letter to the entity. What are the key areas that

should be included in the audit engagement letter? Under what circumstances is the auditor not required
to record the terms of engagement in such a written agreement?
OR
Chirag, as part of articled training, is part of an engagement team conducting audit of a company. He has
read somewhere that engagement letter issued by auditor to client also includes expected form and
content of the auditor’s report. He was at a loss to understand how could an auditor include form and
content of the report beforehand. Try to help Chirag by making things clear to him.
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