SA 210 requires the auditor, before accepting an audit engagement, to establish that the preconditions for an audit are present — that management has used an acceptable financial reporting framework and acknowledged its responsibility for the financial statements, for internal control, and for providing the auditor access to all information — and then to agree the terms of the engagement with those charged with governance or management, recorded in writing, ordinarily as an engagement letter, before significant audit work begins.
The two preconditions, specifically
| Precondition | What it requires confirming |
|---|---|
| Acceptability of the financial reporting framework | That the framework management intends to use is acceptable given the entity's nature and the statements' purpose — not assumed just because it's the framework used last year |
| Management's acknowledged responsibilities | Preparation of the financial statements in accordance with the framework, internal control necessary to enable statements free from material misstatement, and providing the auditor unrestricted access to records, personnel and other information needed for the audit |
What the engagement letter has to contain
- The objective and scope of the audit
- The responsibilities of the auditor
- The responsibilities of management, matching the preconditions acknowledged above
- Identification of the applicable financial reporting framework
- Reference to the expected form and content of any reports to be issued, and a statement that circumstances may arise in which a report differs from its expected form and content
When terms have to be revisited, not just carried forward
- 01Recurring audits — assess whether circumstances require revising termsA change in the entity's ownership, nature of business, management, or legal/regulatory environment can mean last year's letter no longer reflects the engagement; SA 210 requires that assessment each year, not a default to no change.
- 02A change in the terms of engagement requested mid-auditIf management requests a change — e.g. from an audit to a review — the auditor has to consider the reason given, and whether there's a reasonable justification before agreeing; if not reasonably justified, the auditor should not agree, and should consider the implications of continuing the original engagement at all.
- 03Where law or regulation prescribes the termsIf local law sufficiently addresses the matters an engagement letter would otherwise cover, the auditor need not include them again, but should still record that law applies and covers them.
This is practical guidance written for audit teams, not an authoritative statement of any standard or statute. Standards, forms and timelines change. Check the current text issued by the ICAI and the relevant authority before relying on anything here in an audit file.
Related resources
- Audit documentationEngagement letters: what SA 210 requiresWhat an engagement letter must establish, when it needs renewing, and the gaps most often found on file inspection — undated letters and stale scope.
- Audit workflow & automationSA 220: quality control responsibilities on an individual audit engagementSQC 1 builds the firm's quality system. SA 220 is what the engagement partner has to personally do with it on this specific file, this specific year.
- Audit workflow & automationSA 510: auditing opening balances on a first-year audit engagementTrusting last year's closing balance because a predecessor signed off on it isn't evidence under SA 510. The new auditor still has to get comfortable independently.
- Audit workflow & automationThe statutory audit workflow, from evidence collection to sign-offAn engagement end to end: acceptance through to sign-off, with where the time actually goes and the four points at which engagements reliably stall.
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