Hello readers, welcome to this post on SA 210!

Welcome to this post on SA 210, where we will discuss one of the crucial steps of the audit engagement process: ‘agreeing to the terms of the audit engagement.’ As per the Standards on Auditing (SA) 210, this step involves the responsibilities of the auditor in reaching an understanding with management and, where applicable, those charged with governance (TCWG), including the Audit Committee.


SA 210 deals with :

  • The auditor’s responsibilities in agreeing to the terms of the audit engagement with management and, where appropriate, those charged with governance (TCWG), which mainly includes the Audit Committee.
  • Establishing certain preconditions for an audit in writing.
  • Roles and responsibilities of an auditor and that of management/TCWG.


he main objective of SA 210 is to establish whether the preconditions for an audit are present and to confirm that there is a common understanding between the auditor and management and, where appropriate, those charged with governance, regarding the terms of the audit engagement.


Let’s understand the meaning of preconditions.

Preconditions refer to the terms and conditions that are critical for performing an audit in accordance with SAs. They include the following:

  • Whether the financial reporting framework (such as IGAAP or Ind AS or any Special Purpose FRF) to be applied in the preparation of financial statements is acceptable.
  • Whether management acknowledges and understands its responsibility with respect to:
    • Preparation of financial statements in accordance with the applicable financial reporting framework (IGAAP or Ind AS).
    • Maintaining internal control necessary to enable the preparation of financial statements that are free from material misstatement.
    • Providing the auditor with access to all information that management is aware of and that is relevant to the preparation of financial statements, such as records, documentation, and other matters.

Audit Engagement

    • Additional information that the auditor may request from management for the purpose of the audit.
    • Unrestricted access to persons within the entity from whom the auditor determines it necessary to obtain audit evidence.


These preconditions are documented in a written agreement called the Letter of Engagement (LOE). The LOE outlines the roles and responsibilities of both the auditor and management/TCWG. The Institute of Chartered Accountants of India (ICAI) has provided a format of the Letter of Engagement on its website, which can be referred to for guidance.

Consider a business scenario, say Company A wants to purchase goods for its manufacturing operations. For this, Company A will approach a suitable vendor (Company B) who is ready to provide the required goods. To finalize the deal, both parties discuss the following points:

– Price of goods

– Payment Schedule

– When the goods are required

– Responsibility of Company B (e.g. dispatching goods as at an agreed date)

– Responsibility of Company A (e.g. providing entry/ access to Company B’s Truck)

– Any other terms and conditions

All these points are agreed by both the parties in written agreement.

Similarly, in an audit before accepting work, the auditor discusses with the management/ TCWG about roles and responsibilities of both parties. It is written in an agreement called “Letter of Engagement” (“LOE”).

ICAI has hosted on its website format of Letter of Engagement. Refer Link: https://www.icai.org/post.html?post_id=11197

In addition to this, ICAI has also published implementation guide on SA 210. Refer Link: https://resource.cdn.icai.org/68844aasb-igsa210.pdf

Absence of preconditions:

The standard states that if the preconditions for an audit are not present, the auditor shall decline that engagement.

Illustrative clauses that can be incorporated in LOE:

The implementation guide has provided us some illustrative clauses that can be incorporated in LOE which are as follows:

– Clause related to first time appointment

– Reference to reliance of other auditors if any like for branch auditors

– Reference to Statement of Changes in Equity (for Companies adopting Ind AS framework)

– Reference to matters to be communicated to Those Charged with Governance

– Reference on approval of non-audit services

– Reference to Protective clauses on data transfer, workpapers etc

– Reference to complete set of financial statements when entity is listed entity and Regulation 33 and / or 52 of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 is mandatory

– Updating UDIN

– Independence Matters

– Limitation on Damages

– Confidentiality Matters


Maintaining sufficient documentation is essential for auditors in compliance with SA 230. The LOE, being an integral part of pre-engagement activities, serves as one of the most critical documents. By understanding the terms of the audit engagement, the preconditions, and the significance of the LOE, auditors can ensure a smooth and effective audit process.

We hope you found this article useful, providing valuable insights into SA 210 and its implications.

Note: The views expressed in this article are personal and do not constitute an endorsement.

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December 2023