Institut Suprieur de Gestion Anne universitaire 2009/2010

Master Comptabilit Contrle Audit - Module Audit Sami Bouassida

CHAPTER 2 : ACCEPTANCE & CONTINUANCE OF THE AUDIT ENGAGEMENT

Institut Suprieur de Gestion Anne universitaire 2009/2010

Master Comptabilit Contrle Audit - Module Audit Sami Bouassida

This chapter presents requirements of the ISAs during the stage of the acceptance and continuance of audit engagements. It is mainly based of the requirements of the following standards: ISCQ1 ISA 220 ISA 600 ISA 210

Numbers at the beginning of each paragraph refer to the corresponding paragraphs of the concerned standard.

Institut Suprieur de Gestion Anne universitaire 2009/2010

Master Comptabilit Contrle Audit - Module Audit Sami Bouassida

INDEX I- ISQC 1 AND ACCEPTANCE & CONTINUANCE OF AUDIT ENGAGEMENTS .................................... 4 II- ISA 220 AND ACCEPTANCE & CONTINUANCE OF AUDIT ENGAGEMENTS................................ 15 III- ISA 500 AND ACCEPTANCE & CONTINUANCE OF AUDIT ENGAGEMENTS .............................. 18 IV- ISA 550 AND ACCEPTANCE & CONTINUANCE OF AUDIT ENGAGEMENTS .............................. 19 V- ISA 600 AND ACCEPTANCE & CONTINUANCE OF AUDIT ENGAGEMENTS ............................... 20 VI- ISA 210 AND ACCEPTANCE & CONTINUANCE OF AUDIT ENGAGEMENTS .............................. 26

Institut Suprieur de Gestion Anne universitaire 2009/2010

I- ISQC 1 AND ACCEPTANCE & CONTINUANCE OF AUDIT ENGAGEMENTS

Master Comptabilit Contrle Audit - Module Audit Sami Bouassida

ISQC1 QUALITY CONTROL FOR FIRMS THAT PERFORM AUDITS AND REVIEWS OF FINANCIAL STATEMENTS, AND OTHER ASSURANCE AND RELATED SERVICES ENGAGEMENTS

Elements of a System of Quality Control 16. The firm shall establish and maintain a system of quality control that includes policies and procedures that address each of the following elements: (a) Leadership responsibilities for quality within the firm. (b) Relevant ethical requirements. (c) Acceptance and continuance of client relationships and specific engagements. (d) Human resources. (e) Engagement performance. (f) Monitoring. 17. The firm shall document its policies and procedures and communicate them to the firms personnel. (Ref: Para. A2-A3)

Institut Suprieur de Gestion Anne universitaire 2009/2010

Master Comptabilit Contrle Audit - Module Audit Sami Bouassida

Acceptance and Continuance of Client Relationships and Specific Engagements 26. Need for establishing policies and procedures in order to ensure reasonably before deciding to accept or preserve a customer about : the independence of the firm The ability to satisfy requests of the customer (competences & resources) the respect of the requirements of ethics integrity of the customer

Institut Suprieur de Gestion Anne universitaire 2009/2010

Master Comptabilit Contrle Audit - Module Audit Sami Bouassida

Acceptance and Continuance of Client Relationships and Specific Engagements Competence, Capabilities, and Resources (Ref: Para. 26(a)) A18. involves reviewing the specific requirements of the engagement and the existing partner and staff profiles at all relevant levels, and including whether: Firm personnel have knowledge of relevant industries or subject matters; Firm personnel have experience with relevant regulatory or reporting requirements, or the ability to gain the necessary skills and knowledge effectively; The firm has sufficient personnel with the necessary competence and capabilities; Experts are available, if needed; Individuals meeting the criteria and eligibility requirements to perform engagement quality control review are available, where applicable; and The firm is able to complete the engagement within the reporting deadline. 6

Institut Suprieur de Gestion Anne universitaire 2009/2010

Master Comptabilit Contrle Audit - Module Audit Sami Bouassida

Integrity of Client (Ref: Para. 26(c)) A19. With regard to the integrity of a client, matters to consider include, for example: The identity and business reputation of the clients principal owners, key management, and those charged with its governance. The nature of the clients operations, including its business practices. Information concerning the attitude of the clients principal owners, key management and those charged with its governance towards such matters as aggressive interpretation of accounting standards and the internal control environment. Whether the client is aggressively concerned with maintaining the firms fees as low as possible. Indications of an inappropriate limitation in the scope of work. Indications that the client might be involved in money laundering or other criminal activities. The reasons for the proposed appointment of the firm and non reappointment of the previous firm. The identity and business reputation of related parties. The extent of knowledge a firm will have regarding the integrity of a client 7

Institut Suprieur de Gestion Master Comptabilit Contrle Audit - Module Audit Anne universitaire 2009/2010 Sami Bouassida will generally grow within the context of an ongoing relationship with that client. A20. Sources of information on such matters obtained by the firm may include the following: Communications with existing or previous providers of professional accountancy services to the client in accordance with relevant ethical requirements, and discussions with other third parties. Inquiry of other firm personnel or third parties such as bankers, legal counsel and industry peers. Background searches of relevant databases.

Institut Suprieur de Gestion Anne universitaire 2009/2010

Master Comptabilit Contrle Audit - Module Audit Sami Bouassida

27. Policies and procedures shall require: (a) The firm to obtain such information as it considers necessary in the circumstances before accepting an engagement with a new client, when deciding whether to continue an existing engagement, and when considering acceptance of a new engagement with an existing client. (Ref: Para. A21, A23) A21. Deciding whether to continue a client relationship includes consideration of significant matters that have arisen during the current or previous engagements, and their implications for continuing the relationship. For example, a client may have started to expand its business operations into an area where the firm does not possess the necessary expertise.

Institut Suprieur de Gestion Anne universitaire 2009/2010

Master Comptabilit Contrle Audit - Module Audit Sami Bouassida

(b) If a potential conflict of interest is identified in accepting an engagement from a new or an existing client, the firm to determine whether it is appropriate to accept the engagement. (c) If issues have been identified, and the firm decides to accept or continue the client relationship or a specific engagement, the firm to document how the issues were resolved.

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Institut Suprieur de Gestion Anne universitaire 2009/2010

Master Comptabilit Contrle Audit - Module Audit Sami Bouassida

28. The firm shall establish policies and procedures on continuing an engagement and the client relationship, addressing the circumstances where the firm obtains information that would have caused it to decline the engagement had that information been available earlier. Such policies and procedures shall include consideration of: (a) The professional and legal responsibilities that apply to the circumstances, including whether there is a requirement for the firm to report to the person or persons who made the appointment or, in some cases, to regulatory authorities; and (b) The possibility of withdrawing from the engagement or from both the engagement and the client relationship. (Ref: Para. A22-23)

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Institut Suprieur de Gestion Anne universitaire 2009/2010

Master Comptabilit Contrle Audit - Module Audit Sami Bouassida

Withdrawal (Ref: Para. 28) A22. Policies and procedures on withdrawal from an engagement or from both the engagement and the client relationship address issues that include the following: Discussing with the appropriate level of the clients management and those charged with its governance the appropriate action that the firm might take based on the relevant facts and circumstances. If the firm determines that it is appropriate to withdraw, discussing with the appropriate level of the clients management and those charged with its governance withdrawal from the engagement or from both the engagement and the client relationship, and the reasons for the withdrawal. Considering whether there is a professional, legal or regulatory requirement for the firm to remain in place, or for the firm to report the withdrawal from the engagement, or from both the engagement and the client relationship, together with the reasons for the withdrawal, to regulatory authorities.

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Institut Suprieur de Gestion Anne universitaire 2009/2010

Master Comptabilit Contrle Audit - Module Audit Sami Bouassida

QUALITY CONTROL Documenting significant matters, consultations, conclusions and the basis for the conclusions.

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Institut Suprieur de Gestion Anne universitaire 2009/2010

Master Comptabilit Contrle Audit - Module Audit Sami Bouassida

Considerations Specific to Public Sector Audit Organizations (Ref: Para. 2628) A23. In the public sector, auditors may be appointed in accordance with statutory procedures. Accordingly, certain of the requirements and considerations regarding the acceptance and continuance of client relationships and specific engagements as set out paragraphs 26-28 and A18-A22 may not be relevant. Nonetheless, establishing policies and procedures as described may provide valuable information to public sector auditors in performing risk assessments and in carrying out reporting responsibilities.

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Institut Suprieur de Gestion Anne universitaire 2009/2010

Master Comptabilit Contrle Audit - Module Audit Sami Bouassida

II- ISA 220 AND ACCEPTANCE & CONTINUANCE OF AUDIT ENGAGEMENTS

ISA 220 assumes all requirements of ISQC1. Acceptance and Continuance of Client Relationships and Audit Engagements 12. The engagement partner shall be satisfied that appropriate procedures regarding the acceptance and continuance of client relationships and audit engagements have been followed, and shall determine that conclusions reached in this regard are appropriate. (Ref: Para. A8-A9) 13. If the engagement partner obtains information that would have caused the firm to decline the audit engagement had that information been available earlier, the engagement partner shall communicate that information promptly to the firm, so that the firm and the engagement partner can take the necessary action. (Ref: Para. A9)

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Institut Suprieur de Gestion Anne universitaire 2009/2010

Master Comptabilit Contrle Audit - Module Audit Sami Bouassida

Independence 11. The engagement partner shall form a conclusion on compliance with independence requirements that apply to the audit engagement. In doing so, the engagement partner shall: (Ref: Para. A5) (a) Obtain relevant information from the firm and, where applicable, network firms, to identify and evaluate circumstances and relationships that create threats to independence; (b) Evaluate information on identified breaches, if any, of the firms independence policies and procedures to determine whether they create a threat to independence for the audit engagement; and (c) Take appropriate action to eliminate such threats or reduce them to an acceptable level by applying safeguards, or, if considered appropriate, to withdraw from the audit engagement, where withdrawal is possible under applicable law or regulation. The engagement partner shall promptly report to the firm any inability to resolve the matter for appropriate action. (Ref: Para. A6-A7)

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Institut Suprieur de Gestion Anne universitaire 2009/2010 Documentation

Master Comptabilit Contrle Audit - Module Audit Sami Bouassida

24. The auditor shall include in the audit documentation:4 (a) Issues identified with respect to compliance with relevant ethical requirements and how they were resolved. (b) Conclusions on compliance with independence requirements that apply to the audit engagement, and any relevant discussions with the firm that support these conclusions. (c) Conclusions reached regarding the acceptance and continuance of client relationships and audit engagements.

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Institut Suprieur de Gestion Anne universitaire 2009/2010

Master Comptabilit Contrle Audit - Module Audit Sami Bouassida

III- ISA 500 AND ACCEPTANCE & CONTINUANCE OF AUDIT ENGAGEMENTS

Relevance and Reliability (Ref: Para. 7) A26. As noted in paragraph A1, while audit evidence is primarily obtained from audit procedures performed during the course of the audit, it may also include information obtained from other sources such as, for example, previous audits, in certain circumstances, and a firms quality control procedures for client acceptance and continuance. The quality of all audit evidence is affected by the relevance and reliability of the information upon which it is based.

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Institut Suprieur de Gestion Anne universitaire 2009/2010

Master Comptabilit Contrle Audit - Module Audit Sami Bouassida

IV- ISA 550 AND ACCEPTANCE & CONTINUANCE OF AUDIT ENGAGEMENTS

A14. The auditor may also obtain some information regarding the identity of the entitys related parties through inquiries of management during the engagement acceptance or continuance process.

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Institut Suprieur de Gestion Anne universitaire 2009/2010

Master Comptabilit Contrle Audit - Module Audit Sami Bouassida

V- ISA 600 AND ACCEPTANCE & CONTINUANCE OF AUDIT ENGAGEMENTS

ISA 600 SPECIAL CONSIDERATIONSAUDITS OF GROUP FINANCIAL STATEMENTS (INCLUDING THE WORK OF COMPONENT AUDITORS) Acceptance and Continuance 12. In applying ISA 220, the group engagement partner shall determine whether sufficient appropriate audit evidence can reasonably be expected to be obtained in relation to the consolidation process and the financial information of the components on which to base the group audit opinion. For this purpose, the group engagement team shall obtain an understanding of the group, its components, and their environments that is sufficient to identify components that are likely to be significant components. Where component auditors will perform work on the financial information of such components, the group engagement partner shall evaluate whether the group engagement team will be able to be involved in the work of those component auditors to the extent necessary to obtain sufficient appropriate audit evidence. (Ref: Para. A10-A12) 20

Institut Suprieur de Gestion Master Comptabilit Contrle Audit - Module Audit Anne universitaire 2009/2010 Sami Bouassida Acceptance and Continuance Obtaining an Understanding at the Acceptance or Continuance Stage (Ref: Para. 12) A10. In the case of a new engagement, the group engagement teams understanding of the group, its components, and their environments may be obtained from: Information provided by group management; Communication with group management; and Where applicable, communication with the previous group engagement team, component management, or component auditors.

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Institut Suprieur de Gestion Master Comptabilit Contrle Audit - Module Audit Anne universitaire 2009/2010 Sami Bouassida A11. The group engagement teams understanding may include matters such as the following: The group structure, including both the legal and organizational structure (that is, how the group financial reporting system is organized). Components business activities that are significant to the group, including the industry and regulatory, economic and political environments in which those activities take place. The use of service organizations, including shared service centers. A description of group-wide controls. The complexity of the consolidation process. Whether component auditors that are not from the group engagement partners firm or network will perform work on the financial information of any of the components, and group managements rationale for appointing more than one auditor. Whether the group engagement team: Will have unrestricted access to those charged with governance of the group, group management, those charged with governance of the component, component management, component information, and the component auditors (including relevant audit documentation sought by the group engagement team); and 22

Institut Suprieur de Gestion Master Comptabilit Contrle Audit - Module Audit Anne universitaire 2009/2010 Sami Bouassida Will be able to perform necessary work on the financial information of the components.

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Institut Suprieur de Gestion Master Comptabilit Contrle Audit - Module Audit Anne universitaire 2009/2010 Sami Bouassida A12. In the case of a continuing engagement, the group engagement teams ability to obtain sufficient appropriate audit evidence may be affected by significant changes, for example: Changes in the group structure (for example, acquisitions, disposals, reorganizations, or changes in how the group financial reporting system is organized). Changes in components business activities that are significant to the group. Changes in the composition of those charged with governance of the group, group management, or key management of significant components. Concerns the group engagement team has with regard to the integrity and competence of group or component management. Changes in group-wide controls. Changes in the applicable financial reporting framework.

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Institut Suprieur de Gestion Master Comptabilit Contrle Audit - Module Audit Anne universitaire 2009/2010 Sami Bouassida 13. If the group engagement partner concludes that: (a) it will not be possible for the group engagement team to obtain sufficient appropriate audit evidence due to restrictions imposed by group management; and (b) the possible effect of this inability will result in a disclaimer of opinion on the group financial statements),4 the group engagement partner shall either: in the case of a new engagement, not accept the engagement, or, in the case of a continuing engagement, withdraw from the engagement, where withdrawal is possible under applicable law or regulation; or where law or regulation prohibits an auditor from declining an engagement or where withdrawal from an engagement is not otherwise possible, having performed the audit of the group financial statements to the extent possible, disclaim an opinion on the group financial statements. (Ref: Para. A13-A19)

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Institut Suprieur de Gestion Anne universitaire 2009/2010

Master Comptabilit Contrle Audit - Module Audit Sami Bouassida

VI- ISA 210 AND ACCEPTANCE & CONTINUANCE OF AUDIT ENGAGEMENTS

ISA 210 AGREEING THE TERMS OF AUDIT ENGAGEMENTS Scope ISA 210 ISA 210 deals with the auditors responsibilities in agreeing the terms of the audit engagement with management and, where appropriate, those charged with governance. A1. Assurance engagements, which include audit engagements, may only be accepted when the practitioner considers that relevant requirements ISA 220 will be satisfied Effective Date ISA 210 effective for audits of financial statements for periods beginning on or after December 15, 2009.

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Institut Suprieur de Gestion Anne universitaire 2009/2010

Master Comptabilit Contrle Audit - Module Audit Sami Bouassida

Objective 3. The objective of the auditor is to accept or continue an audit engagement only when the basis upon which it is to be performed has been agreed, through: (a) Establishing whether the preconditions for an audit are present; and (b) Confirming that there is a common understanding between the auditor and management and, where appropriate, those charged with governance of the terms of the audit engagement.

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Institut Suprieur de Gestion Master Comptabilit Contrle Audit - Module Audit Anne universitaire 2009/2010 Sami Bouassida Preconditions for an Audit Preconditions for an audit include: The use by management of an acceptable financial reporting framework in the preparation of the financial statements - The agreement of management and, where appropriate, those charged with governance to the premise on which an audit is conducted.

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Institut Suprieur de Gestion Master Comptabilit Contrle Audit - Module Audit Anne universitaire 2009/2010 Sami Bouassida 6. In order to establish whether the preconditions for an audit are present, the auditor shall: (a) Determine whether the financial reporting framework to be applied in the preparation of the financial statements is acceptable; and (Ref: Para. A2-A10) (b) Obtain the agreement of management that it acknowledges and understands its responsibility: (Ref: Para. A11-A14, A20) (i) For the preparation of the financial statements in accordance with the applicable financial reporting framework, including where relevant their fair presentation; (Ref: Para. A15) (ii) For such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error; and (Ref: Para. A16-A19) (iii) To provide the auditor with: a. Access to all information of which management is aware that is relevant to the preparation of the financial statements such as records, documentation and other matters; b. Additional information that the auditor may request from management for the purpose of the audit; and 29

Institut Suprieur de Gestion Master Comptabilit Contrle Audit - Module Audit Anne universitaire 2009/2010 Sami Bouassida c. Unrestricted access to persons within the entity from whom the auditor determines it necessary to obtain audit evidence.

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Institut Suprieur de Gestion Master Comptabilit Contrle Audit - Module Audit Anne universitaire 2009/2010 Sami Bouassida Factors Affecting Audit Engagement Acceptance 8. If the preconditions for an audit are not present, the auditor shall discuss the matter with management. Unless required by law or regulation to do so, the auditor shall not accept the proposed audit engagement: (a) If the auditor has determined that the financial reporting framework to be applied in the preparation of the financial statements is unacceptable, except as provided in paragraph 19; or (b) If the agreement referred to in paragraph 6(b) has not been obtained. Limitation on Scope Prior to Audit Engagement Acceptance (c) 7. If management or those charged with governance impose a limitation on the scope of the auditors work in the terms of a proposed audit engagement such that the auditor believes the limitation will result in the auditor disclaiming an opinion on the financial statements

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Institut Suprieur de Gestion Master Comptabilit Contrle Audit - Module Audit Anne universitaire 2009/2010 Sami Bouassida Financial Reporting Framework Prescribed by Law or Regulation 19. If the auditor has determined that the financial reporting framework prescribed by law or regulation would be unacceptable but for the fact that it is prescribed by law or regulation, the auditor shall accept the audit engagement only if the following conditions are present: (Ref: Para. A35) (a) Management agrees to provide additional disclosures in the financial statements required to avoid the financial statements being misleading; and (b) It is recognized in the terms of the audit engagement that: (i) The auditors report on the financial statements will incorporate an Emphasis of Matter paragraph, drawing users attention to the additional disclosures, in accordance with ISA 706;4 and (ii) Unless the auditor is required by law or regulation to express the auditors opinion on the financial statements by using the phrases present fairly, in all material respects, or give a true and fair view in accordance with the applicable financial reporting framework, the auditors opinion on the financial statements will not include such phrases. 32

Institut Suprieur de Gestion Master Comptabilit Contrle Audit - Module Audit Anne universitaire 2009/2010 Sami Bouassida 20. If the conditions outlined in paragraph 19 are not present and the auditor is required by law or regulation to undertake the audit engagement, the auditor shall: (a) Evaluate the effect of the misleading nature of the financial statements on the auditors report; and (b) Include appropriate reference to this matter in the terms of the audit engagement.

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Institut Suprieur de Gestion Anne universitaire 2009/2010

Master Comptabilit Contrle Audit - Module Audit Sami Bouassida

The Financial Reporting Framework (Ref: Para. 6(a)) A2. A condition for acceptance of an assurance engagement is that the criteria referred to in the definition of an assurance engagement are suitable and available to intended users. Criteria are the benchmarks used to evaluate or measure the subject matter including, where relevant, benchmarks for presentation and disclosure. Suitable criteria enable reasonably consistent evaluation or measurement of a subject matter within the context of professional judgment.

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Institut Suprieur de Gestion Anne universitaire 2009/2010

Master Comptabilit Contrle Audit - Module Audit Sami Bouassida

Determining the Acceptability of the Financial Reporting Framework A4. Factors that are relevant to the auditors determination of the acceptability of the financial reporting framework to be applied in the preparation of the financial statements include: The nature of the entity (for example, whether it is a business enterprise, a public sector entity or a not for profit organization); The purpose of the financial statements (for example, whether they are prepared to meet the common financial information needs of a wide range of users or the financial information needs of specific users); The nature of the financial statements (for example, whether the financial statements are a complete set of financial statements or a single financial statement); and Whether law or regulation prescribes the applicable financial reporting framework.

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Institut Suprieur de Gestion Anne universitaire 2009/2010

Master Comptabilit Contrle Audit - Module Audit Sami Bouassida

A6. In some cases, the financial statements will be prepared in accordance with a financial reporting framework designed to meet the financial information needs of specific users. ISA 800 discusses the acceptability of financial reporting frameworks designed to meet the financial information needs of specific users. General purpose frameworks Examples of such financial reporting standards include: International Financial Reporting Standards (IFRSs) promulgated by the International Accounting Standards Board; International Public Sector Accounting Standards (IPSASs) promulgated by the International Public Sector Accounting Standards Board; and Accounting principles promulgated by an authorized or recognized standards setting organization in a particular jurisdiction, provided the organization follows an established and transparent process involving deliberation and consideration of the views of a wide range of stakeholders. 36

Institut Suprieur de Gestion Master Comptabilit Contrle Audit - Module Audit Anne universitaire 2009/2010 Sami Bouassida These financial reporting standards are often identified as the applicable financial reporting framework in law or regulation governing the preparation of general purpose financial statements. Financial reporting frameworks prescribed by law or regulation A9. In accordance with paragraph 6(a), the auditor is required to determine whether the financial reporting framework, to be applied in the preparation of the financial statements, is acceptable. In the absence of indications to the contrary, such a financial reporting framework is presumed to be acceptable for general purpose financial statements prepared by such entities.

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Institut Suprieur de Gestion Master Comptabilit Contrle Audit - Module Audit Anne universitaire 2009/2010 Sami Bouassida 4. The auditor may decide to compare the accounting conventions to the requirements of an existing financial reporting framework considered to be acceptable. For example, the auditor may compare the accounting conventions to IFRSs. For an audit of a small entity, the auditor may decide to compare the accounting conventions to a financial reporting framework specifically developed for such entities by an authorized or recognized standards setting organization. When the auditor makes such a comparison and differences are identified, the decision as to whether the accounting conventions adopted in the preparation of the financial statements constitute an acceptable financial reporting framework includes considering the reasons for the differences and whether application of the accounting conventions, or the description of the financial reporting framework in the financial statements, could result in financial statements that are misleading. 38

Institut Suprieur de Gestion Anne universitaire 2009/2010

Master Comptabilit Contrle Audit - Module Audit Sami Bouassida

Obtain the agreement of management that it acknowledges and understands its responsibility: (Ref: Para. A11-A14, A20) A13. ISA 580 requires the auditor to request management to provide written representations that it has fulfilled certain of its responsibilities. It may therefore be appropriate to make management aware that receipt of such written representations will be expected, together with written representations required by other ISAs and, where necessary, written representations to support other audit evidence relevant to the financial statements or one or more specific assertions in the financial statements. A14. Where management will not acknowledge its responsibilities, or agree to provide the written representations, the auditor will be unable to obtain sufficient appropriate audit evidence. In such circumstances, it would not be appropriate for the auditor to accept the audit engagement, unless law or regulation requires the auditor to do so. In cases where the auditor is required to accept the audit engagement, the auditor may need to explain to management the importance of these matters, and the implications for the auditors report. 39

Institut Suprieur de Gestion Master Comptabilit Contrle Audit - Module Audit Anne universitaire 2009/2010 Sami Bouassida Agreement on Audit Engagement Terms 9. The auditor shall agree the terms of the audit engagement with management or those charged with governance, as appropriate. (Ref: Para. A21) 10. Subject to paragraph 11, the agreed terms of the audit engagement shall be recorded in an audit engagement letter or other suitable form of written agreement and shall include: (Ref: Para. A22-A25) (a) The objective and scope of the audit of the financial statements; (b) The responsibilities of the auditor; (c) The responsibilities of management; (d) Identification of the applicable financial reporting framework for the preparation of the financial statements; and (e) Reference to the expected form and content of any reports to be issued by the auditor and a statement that there may be circumstances in which a report may differ from its expected form and content.

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Institut Suprieur de Gestion Anne universitaire 2009/2010

Master Comptabilit Contrle Audit - Module Audit Sami Bouassida

11. If law or regulation prescribes in sufficient detail the terms of the audit engagement referred to in paragraph 10, the auditor need not record them in a written agreement. (Ref: Para. A22, A26-A27)

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Institut Suprieur de Gestion Master Comptabilit Contrle Audit - Module Audit Anne universitaire 2009/2010 Sami Bouassida A23. The form and content of the audit engagement letter may vary for each entity. In addition to including the matters required by paragraph 10, an audit engagement letter may make reference to, for example: Elaboration of the scope of the audit, including reference to applicable legislation, regulations, ISAs, and ethical and other pronouncements of professional bodies to which the auditor adheres. The form of any other communication of results of the audit engagement. The fact that because of the inherent limitations of an audit, together with the inherent limitations of internal control, there is an unavoidable risk that some material misstatements may not be detected, even though the audit is properly planned and performed in accordance with ISAs. Arrangements regarding the planning and performance of the audit, including the composition of the audit team. The expectation that management will provide written representations The agreement of management to make available to the auditor draft financial statements and any accompanying other information in time to allow the auditor to complete the audit in accordance with the proposed timetable. 42

Institut Suprieur de Gestion Master Comptabilit Contrle Audit - Module Audit Anne universitaire 2009/2010 Sami Bouassida The agreement of management to inform the auditor of facts that may affect the financial statements, of which management may become aware during the period from the date of the auditors report to the date the financial statements are issued. The basis on which fees are computed and any billing arrangements. A request for management to acknowledge receipt of the audit engagement letter and to agree to the terms of the engagement outlined therein. A24. When relevant, the following points could also be made in the audit engagement letter: Arrangements concerning the involvement of other auditors and experts in some aspects of the audit. Arrangements concerning the involvement of internal auditors and other staff of the entity. Arrangements to be made with the predecessor auditor, if any, in the case of an initial audit. Any restriction of the auditors liability when such possibility exists. A reference to any further agreements between the auditor and the entity. Any obligations to provide audit working papers to other parties. 43

Institut Suprieur de Gestion Master Comptabilit Contrle Audit - Module Audit Anne universitaire 2009/2010 Sami Bouassida Audits of Components A25. When the auditor of a parent entity is also the auditor of a component, the factors that may influence the decision whether to send a separate audit engagement letter to the component include the following: Who appoints the component auditor; Whether a separate auditors report is to be issued on the component; Legal requirements in relation to audit appointments; Degree of ownership by parent; and Degree of independence of the component management from the parent entity.

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Institut Suprieur de Gestion Anne universitaire 2009/2010 Recurring Audits

Master Comptabilit Contrle Audit - Module Audit Sami Bouassida

13. On recurring audits, the auditor shall assess whether circumstances require the terms of the audit engagement to be revised and whether there is a need to remind the entity of the existing terms of the audit engagement. (Ref: Para. A28) A28. The auditor may decide not to send a new audit engagement letter or other written agreement each period. However, the following factors may make it appropriate to revise the terms of the audit engagement or to remind the entity of existing terms: Any indication that the entity misunderstands the objective and scope of the audit. Any revised or special terms of the audit engagement. A recent change of senior management. A significant change in ownership. A significant change in nature or size of the entitys business. A change in legal or regulatory requirements. A change in the financial reporting framework adopted in the preparation of the financial statements. A change in other reporting requirements. 45

Institut Suprieur de Gestion Master Comptabilit Contrle Audit - Module Audit Anne universitaire 2009/2010 Sami Bouassida Acceptance of a Change in the Terms of the Audit Engagement 14. The auditor shall not agree to a change in the terms of the audit engagement where there is no reasonable justification for doing so. (Ref: Para. A29-A31) A29. A request from the entity for the auditor to change the terms of the audit engagement may result from a change in circumstances affecting the need for the service, a misunderstanding as to the nature of an audit as originally requested or a restriction on the scope of the audit engagement, whether imposed by management or caused by other circumstances. The auditor, considers the justification given for the request, particularly the implications of a restriction on the scope of the audit engagement. A change in circumstances that affects the entitys requirements or a misunderstanding concerning the nature of the service originally requested may be considered a reasonable basis for requesting a change in the audit engagement.

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Institut Suprieur de Gestion Master Comptabilit Contrle Audit - Module Audit Anne universitaire 2009/2010 Sami Bouassida A31. In contrast, a change may not be considered reasonable if it appears that the change relates to information that is incorrect, incomplete or otherwise unsatisfactory. An example might be where the auditor is unable to obtain sufficient appropriate audit evidence regarding receivables and the entity asks for the audit engagement to be changed to a review engagement to avoid a qualified opinion or a disclaimer of opinion.

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Institut Suprieur de Gestion Anne universitaire 2009/2010

Master Comptabilit Contrle Audit - Module Audit Sami Bouassida

15. If, prior to completing the audit engagement, the auditor is requested to change the audit engagement to an engagement that conveys a lower level of assurance, the auditor shall determine whether there is reasonable justification for doing so. (Ref: Para. A32-A33) A32. Before agreeing to change an audit engagement to a review or a related service,an auditor who was engaged to perform an audit in accordance with ISAs may concludes that there is reasonable justification to change the audit engagement to a review or a related service; In order to avoid confusing the reader, the report on the related service would not include reference to: (a) The original audit engagement; or (b) Any procedures that may have been performed in the original audit engagement, except where the audit engagement is changed to an engagement to undertake agreed-upon procedures and thus reference to the procedures performed is a normal part of the report. 48

Institut Suprieur de Gestion Master Comptabilit Contrle Audit - Module Audit Anne universitaire 2009/2010 Sami Bouassida 16. If the terms of the audit engagement are changed, the auditor and management shall agree on and record the new terms of the engagement in an engagement letter or other suitable form of written agreement.

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Institut Suprieur de Gestion Master Comptabilit Contrle Audit - Module Audit Anne universitaire 2009/2010 Sami Bouassida 17. If the auditor is unable to agree to a change of the terms of the audit engagement and is not permitted by management to continue the original audit engagement, the auditor shall: (a) Withdraw from the audit engagement where possible under applicable law or regulation; and (b) Determine whether there is any obligation, either contractual or otherwise, to report the circumstances to other parties, such as those charged with governance, owners or regulators.

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Institut Suprieur de Gestion Anne universitaire 2009/2010

Master Comptabilit Contrle Audit - Module Audit Sami Bouassida

Example of an Audit Engagement Letter To the appropriate representative of management or those charged with governance of ABC Company [The objective and scope of the audit] You have requested that we audit the financial statements of ABC Company, which comprise the balance sheet as at December 31, 20X1, and the income statement, statement of changes in equity and cash flow statement for the year then ended, and a summary of significant accounting policies and other explanatory information. We are pleased to confirm our acceptance and our understanding of this audit engagement by means of this letter. Our audit will be conducted with the objective of our expressing an opinion on the financial statements. [The responsibilities of the auditor] We will conduct our audit in accordance with International Standards on Auditing (ISAs). Those standards require that we comply with ethical 51

Institut Suprieur de Gestion Master Comptabilit Contrle Audit - Module Audit Anne universitaire 2009/2010 Sami Bouassida requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditors judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. Because of the inherent limitations of an audit, together with the inherent limitations of internal control, there is an unavoidable risk that some material misstatements may not be detected, even though the audit is properly planned and performed in accordance with ISAs. In making our risk assessments, we consider internal control relevant to the entitys preparation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entitys internal control. However, we will communicate to you in 52

Institut Suprieur de Gestion Master Comptabilit Contrle Audit - Module Audit Anne universitaire 2009/2010 Sami Bouassida writing concerning any significant deficiencies in internal control relevant to the audit of the financial statements that we have identified during the audit. [The responsibilities of management and identification of the applicable financial reporting framework] Our audit will be conducted on the basis that [management and, where appropriate, those charged with governance]acknowledge and understand that they have responsibility: (a) For the preparation and fair presentation of the financial statements in accordance with International Financial Reporting Standards; (b) For such internal control as [management] determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error; and (c) To provide us with: (i) Access to all information of which [management] is aware that is relevant to the preparation of the financial statements such as records, documentation and other matters; (ii) Additional information that we may request from [management] for the purpose of the audit; and 53

Institut Suprieur de Gestion Master Comptabilit Contrle Audit - Module Audit Anne universitaire 2009/2010 Sami Bouassida (iii) Unrestricted access to persons within the entity from whom we determine it necessary to obtain audit evidence. As part of our audit process, we will request from [management and, where appropriate,those charged with governance], written confirmation concerning representations made to us in connection with the audit. We look forward to full cooperation from your staff during our audit. [Other relevant information] [Insert other information, such as fee arrangements, billings and other specific terms, as appropriate.] [Reporting] [Insert appropriate reference to the expected form and content of the auditors report.] The form and content of our report may need to be amended in the light of our audit findings. Please sign and return the attached copy of this letter to indicate your acknowledgement of, and agreement with, the arrangements for our audit of the financial statements including our respective responsibilities. XYZ & Co. Acknowledged and agreed on behalf of ABC Company by (signed) 54

Institut Suprieur de Gestion Anne universitaire 2009/2010 ...................... Name and Title Date

Master Comptabilit Contrle Audit - Module Audit Sami Bouassida

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Institut Suprieur de Gestion Master Comptabilit Contrle Audit - Module Audit Anne universitaire 2009/2010 Sami Bouassida ISA 600 Terms of Engagement (Ref: Para. 14) A20. The terms of engagement identify the applicable financial reporting framework. Additional matters may be included in the terms of a group audit engagement, such as the fact that: The communication between the group engagement team and the component auditors should be unrestricted to the extent possible under law or regulation; Important communications between the component auditors, those charged with governance of the component, and component management, including communications on significant deficiencies in internal control, should be communicated as well to the group engagement team; Important communications between regulatory authorities and components related to financial reporting matters should be communicated to the group engagement team; and To the extent the group engagement team considers necessary, it should be permitted: Access to component information, those charged with governance of components, component management, and the component auditors 56

Institut Suprieur de Gestion Master Comptabilit Contrle Audit - Module Audit Anne universitaire 2009/2010 Sami Bouassida (including relevant audit documentation sought by the group engagement team); and To perform work or request a component auditor to perform work on the financial information of the components. A21. Restrictions imposed on: the group engagement teams access to component information, those charged with governance of components, component management, or the component auditors (including relevant audit documentation sought by the group engagement team); or the work to be performed on the financial information of the components after the group engagement partners acceptance of the group audit engagement, constitute an inability to obtain sufficient appropriate audit evidence that may affect the group audit opinion. In exceptional circumstances it may even lead to withdrawal from the engagement where withdrawal is possible under applicable law or regulation

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