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ISA 210, sets clear the understanding between the auditor and client concerning the conditions of the audit engagement, parameters and goals. This ensures that all expectation is met and efficiency in the audit process.

According to the standard, the terms of engagement are required to be recorded in an audit engagement letter that formalizes the audit goals, restrictions and parameters. The engagement letter details the obligation of the auditor and the client's management, conditions of engagement and the fees to be charged. It also identifies the applicable financial reporting framework.

Ahead of the issue of the engagement letter to the client, auditors have ensure they posses sufficient resources and are competent to handle the audit engagement professionally. The letter of engagement affirms the client of the acceptance of the auditor to conduct an audit of the firm.

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Recall

Notes

Objective

According to ISA 210 the main role of the auditor is to accept or continue with the audit engagement only after:

1. Setting out the preconditions of the audit
2. Establishing that a common understanding of the auditor and client is reached.

Importance of ISA 210

Reduced Risk of Disputes

ISA 210 sets clearly the scope, objectives and responsibilities of the audit engagement hence minimizes the risk of any misunderstanding for both the client and auditor.

During this stage, the use of an effective audit software is helpful in providing the auditor the risk assessment tools that may flag any potential risks. It establishes an audit strategy that clearly aligns with the standard's requirements thus minimizing any misunderstandings.

Enhanced Audit Quality

The standard establishes certain preconditions that are to be met before engagement. the preconditions include ensuring the client's management understands the responsibility for the financial statements accuracy. Through adhering to this conditions, there is an increase in reliability and quality of the audit.

<aside> 📌 SUMMARY:

ISA 210 outlines the importance of agreeing the terms of an audit engagement with management. It establishes preconditions for an audit and requires the use of an engagement letter to document the agreement. The standard also addresses changes to the engagement and the auditor's responsibilities in such situations.

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Prepared by Umar A.