Joanne M. Flood - Wiley Practitioner's Guide to GAAS 2020

5 2AU-C 210 Terms of Engagement 2 AU-C 210 Terms of Engagement Scope Definitions of Terms Objectives of AU-C Section 210 Fundamental Requirements Engagement Acceptance AU-C 210 Illustration Scope SCOPE This section states the requirements and provides application guidance on the auditor’s responsibilities when agreeing upon terms of engagement with management and those charged with governance. It also establishes the important preconditions for an audit, for which management is responsible. AU-C 220, Quality Control for an Engagement Conducted in Accordance with Generally Accepted Auditing Standards , addresses those aspects of engagement acceptance that the auditor can control and the auditor’s responsibilities regarding ethical requirements concerning acceptance of an engagement. (AU-C 210.01 and .A1) Definitions of Terms DEFINITIONS OF TERMS Source: AU-C 210.04. For definitions related to this standard, see Appendix A , “Definitions of Terms”: Preconditions for an audit, Recurring Audit. Objectives of AU-C Section 210 OBJECTIVES OF AU-C SECTION 210 AU-C Section 210.03 states that: … the objective of the auditor is to accept an audit engagement for a new or existing audit client only when the basis upon which it is to be performed has been agreed upon through 1 establishing whether the preconditions for an audit are present and 2 confirming that a common understanding of the terms of the audit engagement exists between the auditor and management and, when appropriate, those charged with governance. Fundamental Requirements FUNDAMENTAL REQUIREMENTS Engagement Acceptance Preconditions Unless required to do so by law or regulation, an auditor should discuss the situation with management and not accept an engagement when the preconditions (see Appendix A , “Definitions of Terms”) are not met. (AU-C 210.08) To assess whether those preconditions are met, the auditor should: 1 determine whether the financial reporting framework 1 to be applied in the preparation of the financial statements is acceptable and 2 obtain the agreement of management that it acknowledges and understands its responsibilityfor the preparation and fair presentation of the financial statements in accordance with the applicable financial reporting framework;for the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error; andto provide the auditor withaccess to all information of which management is aware that is relevant to the preparation and fair presentation of the financial statements, such as records, documentation, and other matters;additional information that the auditor may request from management for the purpose of the audit; andunrestricted access to persons within the entity from whom the auditor determines it necessary to obtain audit evidence.(AU-C 210.06) In evaluating whether the financial reporting framework is acceptable, the auditor may want to consider: The nature of the entity The purpose and nature of the financial statements Whether the framework is determined by law or regulator (AU-C 210.A5) AU-C 210 Illustration

6 3 AU-C 220 Quality Control for an Engagement Conducted in Accordance with Generally Accepted Auditing Standards Scope Definitions of Terms Objective of AU-C Section 220 Requirements