Agreeing to the terms of audit engagement and management

representationsISAs (UK and Ireland) 210 and 580

Martyn JonesNovember 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 eliminateinstances 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