v  Establishing whether the  preconditions for an audit are present;

v  Confirming that there is a common understanding between the auditor & the management

v  Obtain an agreement from the management regarding its obligations of :-

·         Preparation & presentation of financial statements as per Applicable FRF;

·         Establishment of internal control necessary for preparation of financial statement free from material misstatement.

v  Rights of an auditor regarding :-

·         To access all books & accounts relevant for the audit;

·         To obtain the relevant information whenever required;

·         Unrestricted access to the employees for audit evidence.

v  The audit engagement letter must contains :-

·         Objective & Scope of financial statements;

·         Responsibilities of Management & Auditor;

·         Applicable FRF;

·         Expected audit report format;

·         Other necessary terms & conditions

·         Circumstances require the terms of the audit engagement to be revised; &.

·         There is a need to remind the entity of the existing terms of the audit engagement

v  If reasonable, issue new engagement letter.

v  If not reasonable: – don’t change the terms & conditions & continue with the existing terms & conditions.

v  Determine any reporting requirements regarding resignation.

The auditor has determined that financial reporting framework prescribed by the law or regulation would be unacceptable

The auditor shall accept the audit engagement only when :-

v  The management agrees to make additional disclosures in the financial statements to make them acceptable;

v  It is mentioned in the terms & conditions of the audit engagement :-

·         The auditor’s report will contain a paragraph, drawing users attention for such disclosures mentioned above;

·         The audit report will not contain the word “true & fair view”, unless such law permits the auditor to use that word in such circumstances.

The law or regulation applicable to the entity prescribes the layout or wording of the auditor’s report in a form or in terms that are significantly different from the requirements of SAs

v  The auditor shall evaluate :-

·         Whether the users might misunderstand the assurance obtained from financial statements;&

·         If yes, whether the risk can be mitigated by making additional disclosures in the audit report.

v  If the auditor concludes that the additional disclosure by him in the audit report cannot mitigate the risk of misunderstanding, then the auditor should not accept such audit assignment, unless permitted by the law.

v  But the acceptance of such audit assignment by an auditor in such case by virtue of provisions of laws & regulation, then an audit conducted with accordance rules & regulation in such case does not comply the SAs.

v  Therefore the auditor cannot mention in the audit report that the audit was conducted as per the Standards on Auditing.