Engagement letter under SA 210: what it must contain

SA 210 requires the auditor and management to agree the terms of an audit before it begins, and to record them in an audit engagement letter or another suitable form of written agreement. The letter must state the objective and scope of the audit, the auditor’s responsibilities, management’s responsibilities, the applicable financial reporting framework, and the expected form and content of the auditor’s report, with a statement that the report may differ from it in some circumstances.

Before the letter: the preconditions

Before accepting an audit, SA 210 asks the auditor to establish two things:

• that management uses an acceptable financial reporting framework; and
• that management acknowledges and understands its responsibility for preparing the financial statements under that framework, for the internal control needed to prepare them free from material misstatement, and for giving the auditor access to all relevant information, the additional information asked for, and the people within the entity from whom audit evidence is needed.

If these preconditions are not present, SA 210 says the auditor should not accept the audit, unless law or regulation requires it.

What the letter must say

1. The objective and scope of the audit of the financial statements.
2. The responsibilities of the auditor.
3. The responsibilities of management.
4. The applicable financial reporting framework.
5. The expected form and content of any reports the auditor will issue, and a statement that a report may differ from that form and content in some circumstances.

Where law or regulation sets out these terms in enough detail, the letter need only record that the law applies and that management acknowledges and understands its responsibilities.

What a letter usually adds

SA 210’s application material lists further matters an engagement letter may cover, among them:

• the scope in more detail: the laws and regulations, the Standards on Auditing, and the ethical requirements the audit follows;
• that, because of the inherent limitations of an audit and of internal control, some material misstatements may not be detected even in an audit properly planned and performed;
• the timing and arrangements of the audit, and the team;
• that management will give written representations (SA 580);
• that management will make the draft financial statements and other information available in time, and will tell the auditor of facts that may affect the financial statements;
• the basis on which the fee is worked out, and how it is billed;
• the involvement of other auditors, experts or internal auditors, and the arrangements with the predecessor auditor in a first-year audit;
• in India, access to the working papers for peer review and quality review;
• a request that management acknowledge receipt of the letter and agree its terms.

Indian points to cover

• The previous auditor. Communication in writing with the previous auditor before accepting an audit (Clause (8), Part I of the First Schedule to the Chartered Accountants Act, 1949), and, for a company, ascertaining that the appointment formalities have been met (Clause (9)).
• The fee. A fee that is not a percentage of profits and does not depend on the findings or results of the work (Clause (10)).
• A company audit. Appointment and term under section 139 of the Companies Act, 2013, removal and resignation under section 140, remuneration fixed in general meeting under section 142, reporting under CARO 2020 and on internal financial controls where they apply, and the duty to report fraud under section 143(12).
• UDIN. The audit report carries a UDIN generated on the ICAI UDIN portal; keep every UDIN with the work it certifies.

Recurring audits

SA 210 does not require a new letter every year. For a recurring audit the auditor assesses whether the terms need to change and whether the entity should be reminded of them. A fresh letter is wise when:

• senior management, those charged with governance or the ownership changes;
• the business changes significantly in nature or size;
• legal or regulatory requirements, or the financial reporting framework, change;
• management appears to misunderstand the objective and scope of the audit;
• any term is revised or added.

An outline that covers SA 210

1. Addressee, the board or those charged with governance, and date.
2. Objective and scope of the audit.
3. The auditor’s responsibilities, with the inherent limitations.
4. Management’s responsibilities.
5. The financial reporting framework.
6. Reports: their expected form and content, and that they may differ.
7. Other terms: timing, team, written representations, fee, confidentiality, working papers, peer review.
8. The previous auditor and, for a company, appointment, fee and term.
9. Acceptance, signed for the entity.

How rulee.in helps

In rulee.in an engagement letter comes from an accepted proposal (Invoices, Proposals) or is made fresh from a client’s Engagements tab. Choose Statutory audit of financial statements (SA 210), one of 20 engagement types, and the letter is drafted with:

• its own scope, standard, our responsibilities, the client’s responsibilities, limitations and report paragraph;
• the financial reporting framework named;
• CARO 2020 and internal financial controls where they apply, and fraud reporting under section 143(12);
• communication with the previous auditor, the fee fixed in general meeting under section 142, and term, removal and resignation under sections 139 and 140;
• clauses on reports and their use, confidentiality, data protection, working papers, the client’s records (returned, never withheld for unpaid fees), fees and taxes, term and termination, and peer review and quality review;
• a fee note that the fee does not depend on the outcome, citing the Chartered Accountants Act, 1949.

Every block stays editable with a live preview, and the firm’s own wording for each clause can be saved once. The letter downloads as Word or PDF on the firm’s letterhead and is filed in the firm’s own records; rulee.in keeps no copy. Engagement letters and proposals are on the Basic plan (₹899 a month for the whole firm, plus GST) and above.

Frequently asked questions

Is an engagement letter mandatory for an audit?

SA 210 requires the agreed terms of an audit to be recorded in an audit engagement letter or another suitable form of written agreement. Where law or regulation sets out the terms in enough detail, the written record need only say that the law applies and that management acknowledges its responsibilities.

Does a recurring audit need a new engagement letter every year?

No. For a recurring audit, SA 210 asks the auditor to assess whether the terms need revising and whether the entity needs reminding of them. A new letter is wise after a change in management, ownership, the business, the law or the reporting framework.

What must management acknowledge in the letter?

Its responsibility for preparing the financial statements under the applicable framework, for the internal control needed to prepare them free from material misstatement, and for giving the auditor access to all relevant information, any additional information asked for, and the people from whom audit evidence is needed.

Can the audit fee depend on the result of the audit?

Generally no. Under Clause (10) of Part I of the First Schedule to the Chartered Accountants Act, 1949, fees based on a percentage of profits, or contingent on the findings or results of the work, are not allowed except in the few cases the Council’s regulations permit.

Who signs the engagement letter?

The firm issues it, signed by a partner, and management signs a copy to acknowledge receipt and agree the terms.

Can rulee.in prepare an SA 210 engagement letter?

Yes. Choose Statutory audit of financial statements (SA 210) in a proposal or an engagement letter, fill in the specifics, and the letter is drafted with the financial reporting framework, CARO 2020 and internal financial controls where they apply, section 143(12), the previous auditor, and the appointment, fee and term under sections 139 to 142. Every block stays editable, and it downloads as Word or PDF. Engagement letters are on the Basic plan and above.