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

Under SA 210, which of the following is a precondition the auditor must establish before accepting an audit engagement?

The auditor must establish that management acknowledges and understands its responsibilities: preparing the financial statements under the applicable framework, maintaining necessary internal control, and giving the auditor access to information and personnel. SA 210 treats this as a precondition for an audit, whereas turnover, advance fees or an internal auditor are not.

  1. AThat the entity's turnover exceeds a prescribed threshold
  2. BThat management acknowledges and understands its responsibility for preparing the financial statements under the applicable framework and for internal control and providing access to informationCorrect
  3. CThat the audit fee is paid in advance
  4. DThat the entity has appointed an internal auditor

Explanation

SA 210 requires the auditor to determine that the financial reporting framework is acceptable and to obtain management's agreement that it acknowledges and understands its responsibilities for the financial statements, internal control and access to information. Turnover thresholds, advance fees and an internal auditor are not preconditions under SA 210.

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