Agreeing the Terms of the EngagementAgreeing the Terms of the Engagement

Agreeing the Terms of the Engagement

17 The auditor shall agree the terms of the engagement with the entity, which shall be recorded in writing by the auditor and forwarded to the entity. When the review engagement is undertaken pursuant to legislation, the minimum applicable terms are those contained in the legislation.

18 Such a communication helps to avoid misunderstandings regarding the nature of the engagement and, in particular, the objective and scope of the review, the responsibilities of those charged with governance, the extent of the auditor’s responsibilities, the assurance obtained, and the nature and form of the report. The communication ordinarily covers the following matters:

• the objective of a review of an interim financial report;
• the scope of the review;
• the responsibilities of those charged with governance for:

♦ the interim financial report;

♦ establishing and maintaining effective internal control relevant to the preparation of the interim financial report; and

♦ making all financial records and related information available to the auditor;

• agreement from those charged with governance:

♦ to provide written representations to the auditor to confirm representations made orally during the review, as well as representations that are implicit in the entity’s records; and

♦ that where any document containing the interim financial report indicates that the interim financial report has been reviewed by the entity’s auditor, the review report also will be included in the document; and

• the anticipated form and content of the report to be issued, including the identity of the addressee of the report.

An illustrative engagement letter is set out in Appendix 1 to this Auditing Standard. The terms of engagement to review an interim financial report can also be combined with the terms of engagement to audit the annual financial report.