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