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CA Intermediate · Auditing and Ethics · Ethics and Terms of Audit Engagements

Before the audit of Kaveri Foods Pvt. Ltd. begins, the auditor and the management agree on the engagement. The auditor documents the objective and scope of the audit, the auditor's responsibilities, management's responsibilities and the applicable financial reporting framework. Which is the appropriate form of recording the agreed terms under SA 210?

The agreed terms should be recorded in an audit engagement letter or another suitable written agreement. SA 210 requires written evidence of the terms before the audit begins, covering objective, scope, responsibilities of both parties and the reporting framework, so that misunderstandings are avoided.

  1. AAn oral understanding noted in the auditor's diary only
  2. BAn audit engagement letter or other suitable form of written agreementCorrect
  3. CA board resolution of the company without the auditor's signature
  4. DA statement in the auditor's report issued after year-end

Explanation

SA 210 requires the agreed terms of an audit engagement to be recorded in an audit engagement letter or other suitable form of written agreement. Oral understandings and a unilateral board resolution do not evidence agreed terms by both parties. The audit report is issued at the end and cannot serve to record the terms beforehand.

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