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ACCA Strategic Professional · Advanced Audit and Assurance (International) · Professional appointments

Nimbus LLP has just been appointed auditor of a new client, Ardent Ltd, for a first-year audit. Which step is required under ISA 210 before commencing the audit?

Nimbus must agree the terms of the engagement with management or those charged with governance and record them in an engagement letter or other written form before starting the audit, as ISA 210 requires. Verbal understandings are inadequate and third parties such as banks do not approve the terms.

  1. AIssue the audit opinion first and agree terms afterwards
  2. BRely on a verbal understanding because the client is a long-standing friend of a partner
  3. CAgree the terms of the engagement with management or those charged with governance, recorded in an engagement letterCorrect
  4. DWait for the client's bank to approve the engagement

Explanation

ISA 210 requires the auditor to agree the engagement terms with management or those charged with governance and record them in an engagement letter or other suitable written form. Verbal agreement is insufficient, and neither the opinion timing nor the bank has any role.

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