20.Agreeingtothetermsofauditengagement-October2009 - CCAB

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Agreeing to the terms of audit
engagement and management
representations

ISAs (UK and Ireland) 210 and 580

Martyn Jones

November 2009

Agreeing to the terms of audit engagement

An area of change

which involves clients

Is an area where

ICAEW will be issuing

some supporting

guidance

Procedures include
determining whether

the financial reporting
framework to be applied

is acceptable

Procedures to obtain
agreement of

directors that they
acknowledge and

understand their

responsibilities

Why did these revisions occur

To establish whether
the preconditions for
an audit are present

To try to eliminate

instances of accepting
proposed
engagements where
financial reporting
framework

is unacceptable

In the UK and Ireland we would not normally expect

the framework to be an issue

Management responsibility

Preparation of the financial statements in accordance with

the applicable financial reporting framework including,

where relevant, their fair presentation

For such internal control as management determines as

necessary to enable the preparation of financial statements that
are free of material misstatement due to fraud and error

And…..

Management responsibility

Additional information
that the auditor may
request for the purpose
of the audit

Access to all
information of which
management is aware
that is relevant

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

Also to provide the auditor with:

Key points

ISA example

engagement letter

not tailored for UK

and Ireland

Appropriate terminology

for UK or Irish Company

will be directors

Auditors shall not accept the proposed audit engagement

if the financial reporting framework is unacceptable or

agreement to the preconditions has not been obtained

Other key points

Appendix 2

deals with the
determination of
acceptability of
general purpose
frameworks

Recurring audits


need to assess
circumstances that
require the terms to
be revised

A conglomeration of
accounting
convention designed
to suit individual
preferences

is not an acceptable
financial reporting
framework for general
purpose financial
statements

Smaller entities

For example where a
third party has
assisted in the
preparation of the
financial statements

There is a need to
avoid
misunderstanding

Written representations about management
responsibility

Fulfilled its responsibility for the preparation of

the financial statements in accordance with

the applicable financial reporting framework

including, where relevant, their fair presentation

as set out in the terms of the audit engagement

Written representations about management
responsibility (cont’d)

It has provided the

auditor with all relevant
information and access

as agreed in the terms

of engagement

All transactions have

been recorded and are
reflected in the financial
statements

APB guidance is important as it clarifies that representations
can be given to “best of knowledge and belief”

Further UK and Irish guidance


A signed copy of the financial statements may be sufficient
evidence of the directors’ acknowledgement of their collective
responsibility for the preparation of the financial statements where it
incorporates a statement to that effect





A signed copy of the financial statements is, however, not by itself
sufficient appropriate evidence to confirm other representations





Signing responsibilities should be fairly

straightforward for UK and Irish auditors

Other key points

If written representations

not provided discuss with directors,
re
-
evaluate their integrity, evaluate
effect on reliability and take
appropriate actions including effect on
opinions having regard to requirement
to disclaim

Other key points

May wish to consider:

Reminding the
directors that it is an
offence to mislead the
auditor

Communicating the
threshold below which
issues will be
considered immaterial
for the purposes of the
directors’ written
representations