Agreeing the terms of an audit engagement (ISA 210): what does the auditor check before accepting the work and what goes into the engagement letter?

Many directors picture an audit as "the auditors come, check, give an opinion and leave". But even before the first document is examined there is a separate stage: the questions of whether the auditor can take on this work at all, and who is responsible for what, are settled in writing. This stage is governed by ISA 210 "Agreeing the Terms of Audit Engagements". In Uzbekistan international standards on auditing are the standards of auditing activity (Law "On Auditing Activity", Article 9; the procedure for recognising and applying them is in Resolution of the Cabinet of Ministers No. 171 of 11 April 2022).

Key points

1. What the standard settles. The auditor agrees the terms of the engagement with management and, where needed, with those charged with governance. The aim: the audit starts only if its preconditions are met and both parties understand the terms in the same way.
2. First precondition: the reporting framework. The auditor determines which conceptual framework the financial statements are prepared under and assesses whether it is acceptable. If the framework is unclear, it is also unclear what the opinion is given on.
3. Second precondition: management acknowledges its responsibility. Management must understand and confirm that it is responsible for three things: preparing the financial statements in accordance with the chosen framework; the internal control needed to prepare statements free from material misstatement; giving the auditor all information relevant to the statements, any additional information requested, and unrestricted access to the staff needed to obtain evidence.
4. If the scope is limited in advance. If management wants to put a clause into the engagement terms that limits the auditor's work so much that the auditor is expected to disclaim an opinion as a result, the auditor should not accept such work (except where the law requires it).
5. Mandatory content of the engagement letter. The agreed terms are recorded in an audit engagement letter or other written agreement and include: the objective and scope of the audit; the auditor's responsibilities; management's responsibilities; the framework applied in preparing the financial statements; the expected form and content of the reports the auditor will issue, together with a statement that they may differ from what is expected.
6. Recurring audit. A new letter does not have to be written every year, but each time the auditor assesses whether the terms need to be revisited and whether the client needs to be reminded of them again.
7. Changing the terms. If, before the audit is finished, management asks to switch the type of work to a lighter service, the auditor checks whether there is a reasonable justification for it. If there is no reasonable justification, the auditor does not agree to the change. If agreement cannot be reached and it is impossible to continue on the original terms, the auditor withdraws from the engagement where the law allows.
8. Why this stage is useful. The letter prevents later arguments of the "was checking this agreed?" kind. And before signing, the director clearly sees that the audit does not prepare the statements in his place and that responsibility for errors remains with management.

Example: the auditor's acceptance sheet

"Teraksoy Audit" LLC received a proposal from "Yashilvodiy Sut" JSC for an annual audit. Before preparing the draft contract, the engagement leader fills in the following working paper (structure compiled by the author):

Two lines are not resolved. If the branch warehouse holds a large part of the inventories and the director does not drop the restriction, the auditor does not accept the work under point 4. If the director lifts the restriction, management's obligation to give full access is written into the letter, and only after that is the audit plan drawn up.