Required Reading for Class 1-21 (AU-C Section 210)

AU-C Section 210\ Terms of Engagement\ Source: SAS No. 122; SAS No. 134; SAS No. 135; SAS No. 137; SAS No. 138; SAS No.\ 145; SAS No. 147.\ Effective for audits of financial statements for periods ending on or after\ December 15, 2012, unless otherwise indicated.\ Note\ In June 2022, the ASB issued...

AU-C Section 210\ Terms of Engagement\ Source: SAS No. 122; SAS No. 134; SAS No. 135; SAS No. 137; SAS No. 138; SAS No.\ 145; SAS No. 147.\ Effective for audits of financial statements for periods ending on or after\ December 15, 2012, unless otherwise indicated.\ Note\ In June 2022, the ASB issued SAS No. 146, Quality Management for\ an Engagement Conducted in Accordance With Generally Accepted Auditing\ Standards, which contains amendments to this section.\ The amendments are effective for engagements conducted in accordance\ with generally accepted auditing standards for periods beginning on or after\ December 15, 2025, and can be viewed in the appendix of section 220 until the\ effective date, when they will be applied to this section.\ Introduction\ Scope of This Section\.01 This section addresses the auditor's responsibilities in agreeing upon the terms of\ the audit engagement with management and, when appropriate, those charged with\ governance. This includes establishing that certain preconditions for an audit, for which\ management and, when appropriate, those charged with governance are responsible, are\ present. Section 220A, Quality Control for an Engagement Conducted in Accordance With\ Generally Accepted Auditing Standards, addresses those aspects of engagement acceptance\ that are within the control of the auditor. (Ref: par..A1)\ Effective Date\.02 This section is effective for audits of financial statements for periods ending on or after\ December 15, 2012.\ AU-C Sections 200--299 --- General Principles and Responsibilities 36\ © 2024 AICPA. All rights reserved. AU-C Sec. 210 --- Terms of Engagement Objective\.03 The objective of the auditor is to accept an audit engagement for a new or existing audit\ client only when the basis upon which it is to be performed has been agreed upon through\ a. establishing whether the preconditions for an audit are present and\ b. confirming that a common understanding of the terms of the audit engagement exists\ between the auditor and management and, when appropriate, those charged with\ governance.\ Definitions\.04 For purposes of generally accepted auditing standards (GAAS), the following terms have\ the meanings attributed as follows:\ Preconditions for an audit. The use by management of an acceptable financial reporting\ framework in the preparation and fair presentation of the financial statements and the\ agreement of management and, when appropriate, those charged with governance, to the\ premise1 on which an audit is conducted.\ Recurring audit. An audit engagement for an existing audit client for whom the auditor\ performed the preceding audit.\.05 For purposes of this section, references to management are to be read hereafter as\ \"management and, when appropriate, those charged with governance\" unless the context\ suggests otherwise.\ Requirements\ Preconditions for an Audit\.06 In order to establish whether the preconditions for an audit are present, the auditor\ should\ a. determine whether the financial reporting framework to be applied in the\ preparation of the financial statements is acceptable and (Ref: par..A2--.A8)\ b. obtain the agreement of management that it acknowledges and understands its\ responsibility (Ref: par..A9--.A12 and.A18)\ i. for the preparation and fair presentation of the financial statements in\ accordance with the applicable financial reporting framework; (Ref: par..A13)\ ii. for the design, implementation, and maintenance of internal control relevant\ to the preparation and fair presentation of financial statements that are\ 1 Paragraphs.05 and.A2 of section 200, Overall Objectives of the Independent Auditor and the Conduct of an\ Audit in Accordance With Generally Accepted Auditing Standards.\ 37 AU-C Sections 200--299 --- General Principles and Responsibilities\ AU-C Sec. 210 --- Terms of Engagement © 2024 AICPA. All rights reserved. free from material misstatement, whether due to fraud or error; and (Ref:\ par..A14--.A16)\ iii. to provide the auditor with\ 1. access to all information of which management is aware that is relevant\ to the preparation and fair presentation of the financial statements,\ such as records, documentation, and other matters;\ 2. additional information that the auditor may request from management\ for the purpose of the audit; and (Ref: par..A17)\ 3. unrestricted access to persons within the entity from whom the auditor\ determines it necessary to obtain audit evidence.\ \[As amended, effective for audits of financial statements for periods ending on or after\ December 15, 2021, by SAS No. 137.\]\ Management-Imposed Limitation on Scope Prior to Audit Engagement Acceptance That\ Would Result in a Disclaimer of Opinion\.07 If management or those charged with governance of an entity that is not required\ by law or regulation to have an audit impose a limitation on the scope of the auditor's\ 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 as\ a whole, the auditor should not accept such a limited engagement as an audit engagement.\ If management or those charged with governance of an entity that is required by law or\ regulation to have an audit imposes such a scope limitation and a disclaimer of opinion is\ acceptable under the applicable law or to the regulator, the auditor is permitted, but not\ required, to accept the engagement. (Ref: par..A19--.A20)\ Other Factors Affecting Audit Engagement Acceptance\.08 If the preconditions for an audit are not present, the auditor should discuss the matter\ with management. Unless the auditor is required by law or regulation to do so, the auditor\ should 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 or\ b. if the agreement referred to in paragraph.06b has not been obtained.\ Agreement on Audit Engagement Terms\.09 The auditor should agree upon the terms of the audit engagement with management or\ those charged with governance, as appropriate. (Ref: par..A21--.A22)\.10 The agreed-upon terms of the audit engagement should be documented in an audit\ engagement letter or other suitable form of written agreement and should include the\ following: (Ref: par..A23--.A28)\ AU-C Sections 200--299 --- General Principles and Responsibilities 38\ © 2024 AICPA. All rights reserved. AU-C Sec. 210 --- Terms of Engagement a\. The objective and scope of the audit of the financial statements\ b. The responsibilities of the auditor\ c. The responsibilities of management\ d. A statement that because of the inherent limitations of an audit, together with\ the inherent limitations of internal control, an unavoidable risk exists that some\ material misstatements may not be detected, even though the audit is properly\ planned and performed in accordance with GAAS\ e. Identification of the applicable financial reporting framework for the preparation of\ the financial statements\ f. Reference to the expected form and content of any reports to be issued by the auditor\ and a statement that circumstances may arise in which a report may differ from its\ expected form and content (Ref: par..A25)\ \[As amended, effective for audits of financial statements for periods ending on or after\ December 15, 2021, by SAS No. 134.\]\ Initial Audits, Including Reaudit Engagements --- Communications With the\ Predecessor Auditor\.11 Before accepting an engagement for an initial audit, including a reaudit engagement,\ when a predecessor auditor exists, the auditor should request management to authorize\ the predecessor auditor to respond fully to the auditor's inquiries regarding matters that\ will assist the auditor in determining whether to accept the engagement and (Ref: par..A29\ and.A37)\ if management authorizes the predecessor auditor to respond to the auditor's\ inquiries, perform the procedures required in paragraph.12.\ if management refuses to authorize the predecessor auditor to respond, or limits the\ response, the auditor should inquire about the reasons and consider the implications\ of that refusal or limitation in deciding whether to accept the engagement.\ \[As amended, effective for audits of financial statements for periods beginning on or after\ June 30, 2023, by SAS No. 147.\]\.12 If, pursuant to paragraph.11, management authorizes the predecessor auditor to\ respond to the auditor's inquiries, the auditor should inquire of the predecessor auditor\ about matters that will assist the auditor in determining whether to accept the engagement,\ including (Ref: par..A30--.A33)\ a. identified or suspected fraud involving\ i. management,\ ii. employees who have significant roles in internal control, or\ 39 AU-C Sections 200--299 --- General Principles and Responsibilities\ AU-C Sec. 210 --- Terms of Engagement © 2024 AICPA. All rights reserved. iii\. others, when the fraud resulted in a material misstatement in the financial\ statements.\ b. matters involving noncompliance or suspected noncompliance with laws and\ regulations that came to the predecessor auditor's attention during the audit, other\ than when matters are clearly inconsequential.\ \[Paragraph added, effective for audits of financial statements for periods beginning on or\ after June 30, 2023, by SAS No. 147.\]\.13 The AICPA Code of Professional Conduct states that members have a responsibility\ to cooperate with each other.2 Accordingly, if pursuant to paragraph.11, management\ authorizes the predecessor auditor to respond to the auditor's inquiries regarding matters\ that will assist the auditor in determining whether to accept the engagement, the\ predecessor auditor has a responsibility to respond to the auditor's inquiries on a\ timely basis and on the basis of known facts, absent unusual circumstances and unless\ prohibited by applicable law. However, if the predecessor auditor decides, due to impending,\ threatened, or potential litigation; disciplinary proceedings; or other unusual circumstances,\ not to fully respond to the auditor's inquiries, the predecessor auditor should clearly state\ that the response is limited. Such unusual circumstances are expected to be rare. (Ref:\ par..A34--.A35) \[Paragraph added, effective for audits of financial statements for periods\ beginning on or after June 30, 2023, by SAS No. 147.\]\.14 The auditor should evaluate the predecessor auditor's response, or consider the\ implications if the predecessor auditor provides no response or a limited response, in\ determining whether to accept the engagement. (Ref: par..A36) \[Paragraph renumbered\ by the issuance of SAS No. 147, June 2022.\]\.15 When the engagement is accepted, the auditor should document\ a. the inquiries of the predecessor auditor and\ b. the results of those inquiries.\ \[Paragraph added, effective for audits of financial statements for periods beginning on or\ after June 30, 2023, by SAS No. 147.\]\ Recurring Audits\.16 On recurring audits, the auditor should assess whether circumstances require the\ terms of the audit engagement to be revised. If the auditor concludes that the terms of\ the preceding engagement need not be revised for the current engagement, the auditor\ should remind management of the terms of the engagement, and the reminder should be\ documented. (Ref: par..A38--.A39) \[Paragraph renumbered by the issuance of SAS No. 147,\ June 2022.\]\ 2 Paragraph.02 of ET section 0.300.020. \[Footnote added, effective for audits of financial statements for periods\ beginning on or after June 30, 2023, by SAS No. 147.\]\ AU-C Sections 200--299 --- General Principles and Responsibilities 40\ © 2024 AICPA. All rights reserved. AU-C Sec. 210 --- Terms of Engagement Acceptance of a Change in the Terms of the Audit Engagement\.17 The auditor should not agree to a change in the terms of the audit engagement when no\ reasonable justification for doing so exists. (Ref: par..A40--.A42) \[Paragraph renumbered by\ the issuance of SAS No. 147, June 2022.\]\.18 If, prior to completing the audit engagement, the auditor is requested to change\ the audit engagement to an engagement for which the auditor obtains a lower level of\ assurance, the auditor should determine whether reasonable justification for doing so exists.\ (Ref: par..A43--.A44) \[Paragraph renumbered by the issuance of SAS No. 147, June 2022.\]\.19 If the terms of the audit engagement are changed, the auditor and management should\ agree on and document the new terms of the engagement in an engagement letter or other\ suitable form of written agreement. \[Paragraph renumbered by the issuance of SAS No. 147,\ June 2022.\]\.20 If the auditor concludes that no reasonable justification for a change of the terms of the\ audit engagement exists and is not permitted by management to continue the original audit\ engagement, the auditor should\ a. withdraw from the audit engagement when possible under applicable law or\ regulation,\ b. communicate the circumstances to those charged with governance, and\ c. determine whether any obligation, either legal, contractual, or otherwise, exists to\ report the circumstances to other parties, such as owners, or regulators.\ \[Paragraph renumbered by the issuance of SAS No. 147, June 2022.\]\ Additional Considerations in Engagement Acceptance\ Auditor's Report Prescribed by Law or Regulation\.21 If law or regulation prescribes a specific layout, form, or wording of the auditor's report\ that significantly differs from the requirements of GAAS, the auditor should evaluate\ a. whether users might misunderstand the auditor's report and, if so,\ b. whether the auditor would be permitted to reword the prescribed form to be in\ accordance with the requirements of GAAS or attach a separate report.3\ If the auditor determines that rewording the prescribed form or attaching a separate report\ would not be permitted or would not mitigate the risk of users misunderstanding the\ auditor's report, the auditor should not accept the audit engagement unless the auditor\ is required by law or regulation to do so. An audit performed in accordance with such law\ 3 Paragraphs.22--.23 of section 800, Special Considerations --- Audits of Financial Statements Prepared in\ Accordance With Special Purpose Frameworks. \[Footnote renumbered by the issuance of SAS No. 147, June 2022.\]\ 41 AU-C Sections 200--299 --- General Principles and Responsibilities\ AU-C Sec. 210 --- Terms of Engagement © 2024 AICPA. All rights reserved. or regulation does not comply with GAAS. Accordingly, for such an audit, the auditor should\ not include any reference to the audit having been performed in accordance with GAAS\ within the auditor's report.4 (Ref: par..A45--.A46) \[Paragraph renumbered by the issuance\ of SAS No. 147, June 2022.\]\ Application and Other Explanatory Material\ Scope of This Section (Ref: par..01)\.A1 The auditor's responsibilities regarding relevant ethical requirements in the context of\ the acceptance of an audit engagement, insofar as they are within the control of the auditor,\ are addressed in section 220A. This section addresses those matters (or preconditions) that\ are within the control of the entity and upon which it is necessary for the auditor and the\ entity's management to agree.\ Preconditions for an Audit\ The Financial Reporting Framework (Ref: par..06a)\.A2 An applicable financial reporting framework provides the criteria for management\ to present the financial statements of an entity, including the fair presentation of\ those financial statements. The criteria used by the auditor to evaluate or measure the\ subject matter, including, when relevant, a basis for presentation and disclosure, are also\ provided by the financial reporting framework. These criteria enable reasonably consistent\ evaluation or measurement of a subject matter within the context of professional judgment.\.A3 Without an acceptable financial reporting framework, management does not have an\ appropriate basis for the preparation of the financial statements, and the auditor does not\ have suitable criteria for auditing the financial statements. In many cases, the auditor may\ presume that the applicable financial reporting framework is acceptable, as described in\ paragraphs.A6--.A8.\ Determining the Acceptability of the Financial Reporting Framework\.A4 Factors that are relevant to the auditor's determination of the acceptability of the\ financial reporting framework to be applied in the preparation of the financial statements\ include the following:\ The nature of the entity (for example, whether it is a business enterprise, a\ governmental 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)\ The nature of the financial statements (for example, whether the financial statements\ are a complete set of financial statements or a single financial statement)\ 4 Paragraph.22 of section 800. \[Footnote renumbered by the issuance of SAS No. 147, June 2022.\]\ AU-C Sections 200--299 --- General Principles and Responsibilities 42\ © 2024 AICPA. All rights reserved. AU-C Sec. 210 --- Terms of Engagement Whether law or regulation prescribes the applicable financial reporting framework\.A5 Many users of financial statements are not in a position to demand financial statements\ tailored to meet their specific information needs. Although all the information needs of\ specific users cannot be met, financial information needs that are common to a wide range\ of users exist. Financial statements prepared in accordance with a financial reporting\ framework designed to meet the common financial information needs of a wide range of\ users are referred to as general purpose financial statements.\.A6 General purpose frameworks. The sources of established accounting principles that\ are generally accepted are accounting principles promulgated by a body designated by the\ Council of the AICPA to establish such principles, pursuant to the "Accounting Principles\ Rule" (ET sec. 1.320.001) of the AICPA Code of Professional Conduct. Such financial\ reporting standards often are identified as the applicable financial reporting framework\ in law or regulation governing the preparation of general purpose financial statements.\ \[Revised, January 2015, to reflect conforming changes necessary due to the issuance of the\ revised AICPA Code of Professional Conduct, effective December 15, 2014.\]\.A7 Special purpose frameworks. In some cases, the financial statements will be prepared in\ accordance with a special purpose framework. For example, law or regulation may prescribe\ the financial reporting framework to be used in the preparation of financial statements\ for certain types of entities. Such financial statements are referred to as special purpose\ financial statements. Section 800, Special Considerations --- Audits of Financial Statements\ Prepared in Accordance With Special Purpose Frameworks, addresses the acceptability of\ special purpose frameworks.5\.A8 After the audit engagement has been accepted, the auditor may encounter deficiencies\ in the applicable financial reporting framework that indicate that the framework is not\ acceptable. When use of that framework is not prescribed by law or regulation, management\ may decide to adopt another framework that is acceptable. When management does so, the\ previously agreed-upon terms will have changed, and the auditor is required by paragraph\.19 to agree upon new terms of the audit engagement that reflect the change in the\ framework.\ Agreement of the Responsibilities of Management (Ref: par..06b)\.A9 An audit in accordance with GAAS is conducted on the premise that management has\ acknowledged and understands that it has the responsibilities set out in paragraph.06b.6\ The auditor may assist in preparing the financial statements, in whole or in part, based on\ information provided to the auditor by management during the performance of the audit.a\ 5 Paragraph.10 of section 800. \[Footnote renumbered by the issuance of SAS No. 147, June 2022.\]\ 6 Paragraphs.05 and.A2 of section 200. \[Footnote renumbered by the issuance of SAS No. 147, June 2022.\]\ a In January 2013, the Professional Ethics Executive Committee adopted a provision in the \"Scope and\ Applicability of Nonattest Services\" interpretation (ET sec. 1.295.010) under the "Independence Rule" (ET sec.\ 1.200.001) of the AICPA Code of Professional Conduct. This provision provides, among other things, that financial\ statement preparation is considered outside the scope of the attest engagement and, therefore, constitutes a\ nonattest service subject to the requirements of the "Nonattest Services" subtopic (ET sec. 1.295). The provision\ 43 AU-C Sections 200--299 --- General Principles and Responsibilities\ AU-C Sec. 210 --- Terms of Engagement © 2024 AICPA. All rights reserved. However, the concept of an independent audit requires that the auditor's role does not\ involve assuming management's responsibility for the preparation and fair presentation of\ the financial statements or assuming responsibility for the entity's related internal control\ and that the auditor has a reasonable expectation of obtaining the information necessary\ for the audit (including information obtained from outside of the general and subsidiary\ ledgers) insofar as management is able to provide or procure it. Accordingly, the premise is\ fundamental to the conduct of an independent audit. To avoid misunderstanding, agreement\ is reached with management that it acknowledges and understands that it has such\ responsibilities as part of agreeing and documenting the terms of the audit engagement\ as required by paragraphs.09--.10. \[Revised, October 2013, to reflect conforming changes\ necessary due to the revision of Ethics Interpretation No. 101-3. As amended, effective for\ audits of financial statements for periods ending on or after December 15, 2021, by SAS No.\ 134.\]\.A10 The way in which the responsibilities for financial reporting are divided between\ management and those charged with governance will vary according to the resources\ and structure of the entity and any relevant law or regulation and the respective roles\ of management and those charged with governance within the entity. In most cases,\ management is responsible for execution and those charged with governance have oversight\ of management. In some cases, those charged with governance will have, or will assume,\ responsibility for approving the financial statements or monitoring the entity's internal\ control related to financial reporting. In larger entities, a subgroup of those charged\ with governance, such as an audit committee, may be charged with certain oversight\ responsibilities.\.A11 Section 580, Written Representations, requires the auditor to request management\ to provide written representations that it has fulfilled certain of its responsibilities.7 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\ AU-C sections and, when necessary, written representations to support other audit evidence\ relevant to the financial statements or one or more specific assertions in the financial\ statements.\.A12 If management will not acknowledge its responsibilities or indicates that it will not\ provide written representations as requested, the auditor will be unable to obtain sufficient\ appropriate audit evidence.8 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 when 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\ auditor's report.\ is effective for engagements covering periods beginning on or after December 15, 2014. \[Footnote added, October\ 2013, to reflect conforming changes necessary due to the revision of Ethics Interpretation No. 101-3. Footnote\ revised, January 2015, to reflect conforming changes necessary due to the issuance of the revised AICPA Code of\ Professional Conduct, effective December 15, 2014.\]\ 7 Paragraphs.10--.11 of section 580, Written Representations. \[Footnote renumbered by the issuance of SAS No.\ 147, June 2022.\]\ 8 Paragraph.A34 of section 580. \[Footnote renumbered by the issuance of SAS No. 147, June 2022.\]\ AU-C Sections 200--299 --- General Principles and Responsibilities 44\ © 2024 AICPA. All rights reserved. AU-C Sec. 210 --- Terms of Engagement Preparation and Fair Presentation of the Financial Statements (Ref: par..06b(i))\.A13 In an audit of special purpose financial statements, the auditor is required by section\ 800 to obtain the agreement of management that it acknowledges and understands its\ responsibility to include all informative disclosures that are appropriate for the special\ purpose framework used to prepare the entity's financial statements.9 This agreement is a\ precondition of the audit included in the terms of the engagement.\ Internal Control (Ref: par..06b(ii))\.A14 Management maintains such internal control as it determines is necessary to enable\ the preparation and fair presentation of financial statements that are free from material\ misstatement, whether due to fraud or error. Internal control, no matter how effective,\ can provide an entity with only reasonable assurance about achieving the entity's financial\ reporting objectives, due to the inherent limitations of internal control.\.A15 An independent audit conducted in accordance with GAAS does not act as a substitute\ for the maintenance of internal control necessary for the preparation and fair presentation\ of financial statements by management. Accordingly, the auditor is required to obtain the\ agreement of management that it acknowledges and understands that it has responsibility\ for the design, implementation, and maintenance of internal control necessary for this\ purpose. However, the agreement required by paragraph.06b(ii) does not imply that the\ auditor will find that internal control maintained by management has achieved its purpose\ or will be free from deficiencies.\.A16 Management has the responsibility to determine what internal control is necessary\ to enable the preparation and fair presentation of the financial statements. The term\ internal control encompasses a wide range of activities within components of the system\ of internal control that may be described as the control environment; the entity's risk\ assessment process; the entity's process to monitor the system of internal control; the\ information system and communication; and control activities. This division, however, does\ not necessarily reflect how a particular entity may design, implement, and maintain its\ internal control or how it may classify any particular component.10 An entity's internal\ control will reflect the needs of management, the complexity of the business, the nature\ of the risks to which the entity is subject, and relevant laws or regulations. \[As amended,\ effective for audits of financial statements for periods ending on or after December 15, 2023,\ by SAS No. 145.\]\ Additional Information (Ref: par..06biii(2))\.A17 Additional information that the auditor may request from management for the\ purpose of the audit may include, when applicable, matters related to other information\ in accordance with section 720, The Auditor's Responsibilities Relating to Other Information\ 9 Paragraph.11 of section 800. \[Footnote renumbered by the issuance of SAS No. 147, June 2022.\]\ 10 Paragraph.A51 and appendix B, \"Internal Control Components,\" of section 315A, Understanding the Entity and\ Its Environment and Assessing the Risks of Material Misstatement. \[Footnote renumbered by the issuance of SAS\ No. 147, June 2022.\]\ 45 AU-C Sections 200--299 --- General Principles and Responsibilities\ AU-C Sec. 210 --- Terms of Engagement © 2024 AICPA. All rights reserved. Included in Annual Reports. When the auditor expects to obtain other information after\ the date of the auditor's report, the terms of the audit engagement may also acknowledge\ the auditor's responsibilities relating to such other information including, if applicable, the\ actions that may be appropriate or necessary if the auditor concludes that an uncorrected\ material misstatement of the other information exists in such other information. \[Paragraph\ added, effective for audits of financial statements for periods ending on or after December\ 15, 2021, by SAS No. 137.\]\ Considerations Relevant to Smaller Entities (Ref: par..06b)\.A18 One of the purposes of agreeing upon the terms of the audit engagement is to\ avoid misunderstanding about the respective responsibilities of management and the\ auditor. For example, when the auditor or a third party has assisted with drafting the\ financial statements, it may be useful to remind management that the preparation and\ fair presentation of the financial statements in accordance with the applicable financial\ reporting framework remains its responsibility. \[Paragraph renumbered by the issuance of\ SAS No. 137, July 2019.\]\ Management-Imposed Limitation on Scope Prior to Audit Engagement Acceptance That\ Would Result in a Disclaimer of Opinion (Ref: par..07)\.A19 Scope limitations may be imposed by management or by circumstances. Examples\ of scope limitations that would not preclude the auditor from accepting the engagement\ include the following:\ A restriction imposed by management that the auditor believes will result in a\ qualified opinion\ A restriction imposed by circumstances beyond the control of management\ \[Paragraph renumbered by the issuance of SAS No. 137, July 2019.\]\.A20 Employee benefit plans are an example of entities that are required to have an audit\ by law or regulation and a disclaimer of opinion is acceptable under the applicable law\ or to the regulator. For such entities, the auditor is neither precluded from accepting, nor\ required to accept, the engagement, regardless of whether management imposes a scope\ limitation that is expected to result in the auditor disclaiming an opinion on the financial\ statements as a whole. \[Paragraph renumbered by the issuance of SAS No. 137, July 2019.\]\ Agreement on Audit Engagement Terms\ Agreeing Upon the Terms of the Audit Engagement (Ref: par..09)\.A21 The roles of management and those charged with governance in agreeing upon the\ terms of the audit engagement for the entity depend on the governance structure of the\ entity and relevant law or regulation. Depending on the entity's structure, the agreement\ may be with management, those charged with governance, or both. When the agreement\ on the terms of engagement is only with those charged with governance, nonetheless in\ AU-C Sections 200--299 --- General Principles and Responsibilities 46\ © 2024 AICPA. All rights reserved. AU-C Sec. 210 --- Terms of Engagement accordance with paragraph.06, the auditor is required to obtain management's agreement\ that it acknowledges and understands its responsibilities. \[Paragraph renumbered by the\ issuance of SAS No. 137, July 2019.\]\.A22 When a third party has contracted for the audit of the entity's financial statements,\ agreeing the terms of the audit with management of the entity is necessary in order to\ establish that the preconditions for an audit are present. \[Paragraph renumbered by the\ issuance of SAS No. 137, July 2019.\]\ Audit Engagement Letter or Other Form of Written Agreement11 (Ref: par..10)\.A23 Both management and the auditor have an interest in documenting the agreed-\ upon terms of the audit engagement before the commencement of the audit to help\ avoid misunderstandings with respect to the audit. For example, it reduces the risk that\ management may inappropriately rely on the auditor to protect management against\ certain risks or to perform certain functions that are management's responsibility.\ \[Paragraph renumbered by the issuance of SAS No. 137, July 2019.\]\ Form and Content of the Audit Engagement Letter\.A24 The form and content of the audit engagement letter may vary for each entity.\ Information included in the audit engagement letter on the auditor's responsibilities may\ be based on section 200, Overall Objectives of the Independent Auditor and the Conduct of\ an Audit in Accordance With Generally Accepted Auditing Standards.12 Paragraph.06b of\ this section addresses the description of the responsibilities of management. In addition to\ including the matters required by paragraph.10, an audit engagement letter may make\ reference to, for example, the following:\ Elaboration of the scope of the audit, including reference to applicable legislation,\ regulations, GAAS, and ethical and other pronouncements of professional bodies to\ which the auditor adheres\ Arrangements regarding the planning and performance of the audit, including the\ composition of the engagement team\ The communication of key audit matters\ The form of any other communication about the results of the audit engagement\ The expectation that management will provide written representations (see also\ paragraph.A11)\ The expectation that management will provide access to all information of which\ management is aware that is relevant to the preparation and fair presentation of the\ 11 In the paragraphs that follow, any reference to an audit engagement letter is to be taken as a reference to an\ audit engagement letter or other suitable form of written agreement. \[Footnote renumbered by the issuance of\ SAS No. 147, June 2022.\]\ 12 Paragraphs.04--.10 of section 200. \[Footnote renumbered by the issuance of SAS No. 147, June 2022.\]\ 47 AU-C Sections 200--299 --- General Principles and Responsibilities\ AU-C Sec. 210 --- Terms of Engagement © 2024 AICPA. All rights reserved. financial statements, including an expectation that management will provide access to\ information relevant to disclosures\ The agreement of management to make available to the auditor draft financial\ statements, including all information relevant to their preparation and fair\ presentation, whether obtained from within or outside of the general and subsidiary\ ledgers (including all information relevant to the preparation and fair presentation of\ disclosures), and any accompanying other information13 in time to allow the auditor to\ complete the audit in accordance with the proposed timetable\ The agreement of management to inform the auditor of events occurring or facts\ discovered subsequent to the date of the financial statements, of which management\ may become aware, that may affect the financial statements\ 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, as may be evidenced by\ management signing the engagement letter\ \[As amended, effective for audits of financial statements for periods ending on or after\ December 15, 2021, by SAS No. 134. Paragraph renumbered by the issuance of SAS No. 137,\ July 2019.\]\.A25 Although there is no requirement in GAAS to communicate key audit matters, the\ engagement letter may acknowledge that management has requested that the auditor\ communicate key audit matters in the auditor's report. If the terms of the audit engagement\ initially acknowledge that key audit matters will be communicated, but it is later decided\ that this will not be done, the engagement letter may need to be modified accordingly. If,\ after the engagement letter is signed, management requests that the auditor communicate\ key audit matters, the auditor may acknowledge this agreement in a new engagement letter\ or as an addendum to the originally signed letter. \[Paragraph added, effective for audits\ of financial statements for periods ending on or after December 15, 2021, by SAS No. 134.\ Paragraph renumbered by the issuance of SAS No. 137, July 2019.\]\.A26 When relevant, the following points also could be made in the audit engagement letter:\ Arrangements concerning the involvement of other auditors and specialists 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\ 13 As defined in section 720B, Other Information in Documents Containing Audited Financial Statements.\ \[Footnote added, effective for audits of financial statements for periods ending on or after December 15, 2021,\ by SAS No. 134. Footnote renumbered by the issuance of SAS No. 147, June 2022.\]\ AU-C Sections 200--299 --- General Principles and Responsibilities 48\ © 2024 AICPA. All rights reserved. AU-C Sec. 210 --- Terms of Engagement Any restriction of the auditor's liability when not prohibited\ Any obligations of the auditor to provide audit documentation to other parties\ Additional services to be provided, such as those relating to regulatory requirements\ A reference to any further agreements between the auditor and the entity\ \[Paragraph renumbered by the issuance of SAS No. 134, May 2019. Paragraph subsequently\ renumbered by the issuance of SAS No. 137, July 2019.\]\.A27 Reference to the expected form and content of any reports to be issued by the auditor\ may include a description of the types of reports to be issued. The auditor need not describe\ the type of opinion expected to be expressed. An example of an audit engagement letter is\ set out in the exhibit "Example of an Audit Engagement Letter." \[Paragraph renumbered\ by the issuance of SAS No. 134, May 2019. Paragraph subsequently renumbered by the\ issuance of SAS No. 137, July 2019.\]\.A28 Audits of components. When the auditor of a parent entity is also the auditor of a\ component, the factors that may influence the decision whether to obtain a separate audit\ engagement letter from the component include the following:\ Who engages the component auditor\ Whether a separate auditor's report is to be issued on the component\ Legal requirements regarding the appointment of the auditor\ Degree of ownership by parent\ Degree of independence of the component management from the parent entity\ \[Paragraph renumbered by the issuance of SAS No. 134, May 2019. Paragraph subsequently\ renumbered by the issuance of SAS No. 137, July 2019.\]\ Initial Audits, Including Reaudit Engagements --- Communications With the\ Predecessor Auditor (Ref: par..11--.15)\.A29 An auditor may make a proposal for an audit engagement before being granted\ permission to make inquiries of a predecessor auditor. The auditor may advise management\ in the proposal or otherwise that the auditor's acceptance of the engagement cannot be final\ until the inquiries have been made and the responses of the predecessor auditor have been\ evaluated. \[Paragraph renumbered by the issuance of SAS No. 134, May 2019. Paragraph\ subsequently renumbered by the issuance of SAS No. 137, July 2019.\]\.A30 Relevant ethical and professional requirements guide the auditor's communications\ with the predecessor auditor and management, as well as the predecessor auditor's\ response. Such requirements provide that, except as permitted by the rules of the\ AICPA Code of Professional Conduct, an auditor is precluded from disclosing confidential\ information obtained in the course of an engagement unless management specifically\ 49 AU-C Sections 200--299 --- General Principles and Responsibilities\ AU-C Sec. 210 --- Terms of Engagement © 2024 AICPA. All rights reserved. consents. Relevant ethical and professional requirements also provide that both the\ auditor and the predecessor auditor hold in confidence information obtained from each\ other. This obligation applies regardless of whether the auditor accepts the engagement.\ \[Paragraph renumbered by the issuance of SAS No. 134, May 2019. Paragraph subsequently\ renumbered by the issuance of SAS No. 137, July 2019. Paragraph renumbered and\ amended, effective for audits of financial statements for periods beginning on or after June\ 30, 2023, by SAS No. 147.\]\.A31 The inquiries specified in paragraph.12a--b are consistent with matters that the\ predecessor auditor communicated with those charged with governance as required by\ section 240, Consideration of Fraud in a Financial Statement Audit,14 and section 250,\ Consideration of Laws and Regulations in an Audit of Financial Statements,15 respectively.\ \[Paragraph added, effective for audits of financial statements for periods beginning on or\ after June 30, 2023, by SAS No. 147.\]\ \[.A32\] \[Paragraph renumbered by the issuance of SAS No. 134, May 2019. Paragraph\ subsequently renumbered by the issuance of SAS No. 137, July 2019. Paragraph deleted\ by the issuance of SAS No. 147, June 2022.\]\.A33 The communication with the predecessor auditor may be either written or oral. In\ addition to the inquiries specified in paragraph.12a--b, matters subject to the auditor's\ inquiry of the predecessor auditor may include the following:\ Information that might bear on the integrity of management\ Disagreements with management about accounting policies, auditing procedures, or\ other similarly significant matters\ Communications to management and those charged with governance regarding\ significant deficiencies and material weaknesses in internal control\ The predecessor auditor's understanding about the reasons for the change of auditors\ The predecessor auditor\'s understanding of the nature of the entity's relationships and\ transactions with related parties and significant unusual transactions\ \[Paragraph renumbered by the issuance of SAS No. 134, May 2019. As amended, effective\ for audits of financial statements for periods ending on or after December 15, 2021, by SAS\ No. 135. Paragraph subsequently renumbered by the issuance of SAS No. 137, July 2019. As\ amended, effective for audits of financial statements for periods beginning on or after June\ 30, 2023, by SAS No. 147.\]\.A34 Before responding to the auditor's inquiries made pursuant to paragraph.12, the\ predecessor auditor may consider it appropriate to obtain legal advice to determine whether\ 14 Paragraph.40 of section 240, Consideration of Fraud in a Financial Statement Audit. \[Footnote added, effective\ for audits of financial statements for periods beginning on or after June 30, 2023, by SAS No. 147.\]\ 15 Paragraph.21 of section 250, Consideration of Laws and Regulations in an Audit of Financial Statements.\ \[Footnote added, effective for audits of financial statements for periods beginning on or after June 30, 2023, by\ SAS No. 147.\]\ AU-C Sections 200--299 --- General Principles and Responsibilities 50\ © 2024 AICPA. All rights reserved. AU-C Sec. 210 --- Terms of Engagement any professional or legal requirements or unusual circumstances may limit the predecessor\ auditor's ability to respond. \[Paragraph added, effective for audits of financial statements\ for periods beginning on or after June 30, 2023, by SAS No. 147.\]\.A35 When more than one auditor is considering accepting an engagement, the predecessor\ auditor is not expected to be available to respond to inquiries until an auditor has been\ selected by the entity. \[Paragraph renumbered by the issuance of SAS No. 134, May 2019.\ Paragraph subsequently renumbered by the issuance of SAS No. 137, July 2019. Paragraph\ renumbered and amended, effective for audits of financial statements for periods beginning\ on or after June 30, 2023, by SAS No. 147.\]\ Considerations Specific to Governmental Entities\.A36 When the auditor is required by law or regulation to audit a governmental entity,\ inquiries of the predecessor auditor for the purpose of obtaining information about whether\ to accept the engagement may not be relevant. However, inquiries of the predecessor auditor\ may still be relevant for the purpose of obtaining information that is used by the auditor\ in planning and performing the audit.16 \[Paragraph renumbered by the issuance of SAS\ No. 134, May 2019. Paragraph subsequently renumbered by the issuance of SAS No. 137,\ July 2019. Paragraph subsequently renumbered by the issuance of SAS No. 147, June 2022.\ Paragraph subsequently renumbered by the issuance of SAS No. 147, June 2022.\]\.A37 In accordance with generally accepted governmental auditing standards, if the law or\ regulation requiring an audit specifically identifies the entities to be audited, in addition\ to management, the auditor may find it necessary to obtain authorization from those\ individuals contracting for or requesting the audit and from those legislative committees,\ if any, that have ongoing oversight responsibilities for the audited entity. \[Paragraph added,\ effective for audits of financial statements for periods beginning on or after June 30, 2023,\ by SAS No. 147.\]\ Recurring Audits (Ref: par..16)\.A38 The following factors may make it appropriate to revise the terms of the audit\ engagement:\ Any indication that management misunderstands the objective and scope of the audit\ Any revised or special terms of the audit engagement\ A change of senior management\ A significant change in ownership\ A significant change in the nature or size of the entity's business\ 16 Section 510, Opening Balances --- Initial Audit Engagements, Including Reaudit Engagements, addresses the\ auditor's responsibilities relating to opening balances when conducting an initial audit engagement. \[Footnote\ renumbered by the issuance of SAS No. 134, May 2019. Footnote subsequently renumbered by the issuance of SAS\ No. 147, June 2022.\]\ 51 AU-C Sections 200--299 --- General Principles and Responsibilities\ AU-C Sec. 210 --- Terms of Engagement © 2024 AICPA. All rights reserved. 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\ \[Paragraph renumbered by the issuance of SAS No. 134, May 2019. Paragraph subsequently\ renumbered by the issuance of SAS No. 137, July 2019. Paragraph subsequently\ renumbered by the issuance of SAS No. 147, June 2022.\]\.A39 The auditor may remind management of the terms of the engagement in writing\ or orally. A written reminder might be a letter confirming that the terms of the\ preceding engagement will govern the current engagement. If the reminder is oral, audit\ documentation may include with whom the discussion took place, when, and the significant\ points discussed. \[Paragraph renumbered by the issuance of SAS No. 134, May 2019.\ Paragraph subsequently renumbered by the issuance of SAS No. 137, July 2019. Paragraph\ subsequently renumbered by the issuance of SAS No. 147, June 2022.\]\ Acceptance of a Change in the Terms of the Audit Engagement\ Request to Change the Terms of the Audit Engagement (Ref: par..17)\.A40 A request from management 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 about 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, as required by paragraph.17, considers the justification\ given for the request, particularly the implications of a restriction on the scope of the\ audit engagement. \[Paragraph renumbered by the issuance of SAS No. 134, May 2019.\ Paragraph subsequently renumbered by the issuance of SAS No. 137, July 2019. Paragraph\ subsequently renumbered by the issuance of SAS No. 147, June 2022.\]\.A41 A change in circumstances that affects management's 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. \[Paragraph\ renumbered by the issuance of SAS No. 134, May 2019. Paragraph subsequently\ renumbered by the issuance of SAS No. 137, July 2019. Paragraph subsequently\ renumbered by the issuance of SAS No. 147, June 2022.\]\.A42 In contrast, a change may not be considered reasonable if the change appears to relate\ to information that is incorrect, incomplete, or otherwise unsatisfactory. An example might\ be when the auditor is unable to obtain sufficient appropriate audit evidence regarding\ receivables and management asks for the audit engagement to be changed to a review\ engagement to avoid a qualified opinion or a disclaimer of opinion. \[Paragraph renumbered\ by the issuance of SAS No. 134, May 2019. Paragraph subsequently renumbered by the\ issuance of SAS No. 137, July 2019. Paragraph subsequently renumbered by the issuance of\ SAS No. 147, June 2022.\]\ AU-C Sections 200--299 --- General Principles and Responsibilities 52\ © 2024 AICPA. All rights reserved. AU-C Sec. 210 --- Terms of Engagement Request to Change to a Review or Other Service (Ref: par..18)\.A43 Before agreeing to change an audit engagement to a review or other service, an\ auditor who was engaged to perform an audit in accordance with GAAS may need to assess,\ in addition to the matters referred to in paragraphs.A40--.A42, any legal or contractual\ implications of the change. \[Paragraph renumbered by the issuance of SAS No. 134, May\ 2019. Paragraph subsequently renumbered by the issuance of SAS No. 137, July 2019.\ Paragraph subsequently renumbered by the issuance of SAS No. 147, June 2022.\]\.A44 If the auditor concludes that reasonable justification to change the audit engagement\ to a review or other service exists, the audit work performed to the date of change may\ be relevant to the changed engagement; however, the work required to be performed and\ the report to be issued would be those appropriate to the revised engagement. In order to\ avoid confusing the reader, the report on the other service would not include reference to the\ following:\ a. The original audit engagement\ b. Any procedures that may have been performed in the original audit engagement,\ except when 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\ \[Paragraph renumbered by the issuance of SAS No. 134, May 2019. Paragraph subsequently\ renumbered by the issuance of SAS No. 137, July 2019. Paragraph subsequently\ renumbered by the issuance of SAS No. 147, June 2022.\]\ Additional Considerations in Engagement Acceptance\ Auditor's Report Prescribed by Law or Regulation (Ref: par..21)\.A45 GAAS require that the auditor not represent compliance with GAAS unless the auditor\ has complied with all of the AU-C sections relevant to the audit.17 If the auditor is required\ by law or regulation to use a specific layout, form, or wording of the auditor's report,\ section 800 requires that the auditor's report refer to GAAS only if the auditor's report\ includes the minimum reporting elements.18 In accordance with section 800, if the specific\ layout, form, or wording of the auditor's report is not acceptable or would cause an auditor\ to make a statement that the auditor has no basis to make, the auditor is required to\ reword the prescribed form of report or attach an appropriately worded separate report.19\ When the auditor concludes that rewording the prescribed form to be in accordance with\ the requirements of GAAS or attaching a separate report would not be permitted, the\ 17 Paragraph.22 of section 200. \[Footnote renumbered by the issuance of SAS No. 134, May 2019. Footnote\ subsequently renumbered by the issuance of SAS No. 147, June 2022.\]\ 18 Paragraph.22 of section 800. \[Footnote renumbered by the issuance of SAS No. 134, May 2019. Footnote\ subsequently renumbered by the issuance of SAS No. 147, June 2022.\]\ 19 Paragraph.23 of section 800. \[Footnote renumbered by the issuance of SAS No. 134, May 2019. Footnote\ subsequently renumbered by the issuance of SAS No. 147, June 2022.\]\ 53 AU-C Sections 200--299 --- General Principles and Responsibilities\ AU-C Sec. 210 --- Terms of Engagement © 2024 AICPA. All rights reserved. auditor may consider including a statement in the auditor's report that the audit is not\ conducted in accordance with GAAS. The auditor is, however, encouraged to apply GAAS,\ including the AU-C sections that address the auditor's report, to the extent practicable,\ notwithstanding that the auditor is not permitted to refer to the audit being conducted in\ accordance with GAAS. \[Paragraph renumbered by the issuance of SAS No. 134, May 2019.\ Paragraph subsequently renumbered by the issuance of SAS No. 137, July 2019. Paragraph\ subsequently renumbered by the issuance of SAS No. 147, June 2022.\]\ Considerations Specific to Governmental Entities\.A46 For governmental entities, specific legal or regulatory requirements may exist; for\ example, the auditor may be required to report directly to the legislature or the public\ if management attempts to limit the scope of the audit. \[Paragraph renumbered by the\ issuance of SAS No. 134, May 2019. Paragraph subsequently renumbered by the issuance\ of SAS No. 137, July 2019. Paragraph subsequently renumbered by the issuance of SAS No.\ 147, June 2022.\]\ AU-C Sections 200--299 --- General Principles and Responsibilities 54\ © 2024 AICPA. All rights reserved. AU-C Sec. 210 --- Terms of Engagement Exhibit --- Example of an Audit Engagement Letter (Ref: par..A27)\.A47\ The following is an example of an audit engagement letter for an audit of general purpose\ financial statements prepared in accordance with accounting principles generally accepted\ in the United States of America, as promulgated by the Financial Accounting Standards\ Board. This engagement letter is intended as guidance that may be used in conjunction with\ the considerations outlined in this section. The engagement letter will vary according to\ individual requirements and circumstances and is drafted to refer to the audit of financial\ statements for a single reporting period. The auditor may seek legal advice about whether a\ proposed engagement letter is suitable.\ 55 AU-C Sections 200--299 --- General Principles and Responsibilities\ AU-C Sec. 210 --- Terms of Engagement © 2024 AICPA. All rights reserved. To the appropriate representative of those charged with governance of ABC Company:1\ \[The objective and scope of the audit\]\ You2 have requested that we audit the financial statements of ABC Company, which\ comprise the balance sheet as of December 31, 20XX, and the related statements of income,\ changes in stockholders' equity, and cash flows for the year then ended, and the related\ notes to the financial statements. We are pleased to confirm our acceptance and our\ understanding of this audit engagement by means of this letter.\ The objectives of our audit are to obtain reasonable assurance about whether the financial\ statements as a whole are free from material misstatement, whether due to fraud or\ error, and to issue an auditor's report that includes our opinion. Reasonable assurance is\ a high level of assurance but is not absolute assurance and therefore is not a guarantee\ that an audit conducted in accordance with auditing standards generally accepted in the\ United States of America (GAAS) will always detect a material misstatement when it\ exists. Misstatements can arise from fraud or error and are considered material if there\ is a substantial likelihood that, individually or in the aggregate, they would influence the\ judgment made by a reasonable user based on the financial statements.\ \[The responsibilities of the auditor\]\ We will conduct our audit in accordance with GAAS. As part of an audit in accordance with\ GAAS, we exercise professional judgment and maintain professional skepticism throughout\ the audit. We also:\ Identify and assess the risks of material misstatement of the financial statements,\ whether due to fraud or error, design and perform audit procedures responsive to\ those risks, and obtain audit evidence that is sufficient and appropriate to provide\ a basis for our opinion. The risk of not detecting a material misstatement resulting\ from fraud is higher than for one resulting from error, as fraud may involve collusion,\ forgery, intentional omissions, misrepresentations, or the override of internal control.\ Obtain an understanding of internal control relevant to the audit 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 entity's internal control.3 However,\ we will communicate to you in writing concerning any significant deficiencies or\ material weaknesses in internal control relevant to the audit of the financial\ statements that we have identified during the audit.\ 1 The addressees and references in the letter would be those that are appropriate in the circumstances of\ the engagement, including the relevant jurisdiction. It is important to refer to the appropriate persons. See\ paragraph.A21.\ 2 Throughout this letter, references to you, we, us, management, those charged with governance, and auditor would\ be used or amended as appropriate in the circumstances.\ 3 This sentence would be modified, as appropriate, in circumstances in which the auditor also has a responsibility\ to issue an opinion on the effectiveness of internal control over financial reporting in conjunction with the audit\ of the financial statements. \[Footnote added, effective for audits of financial statements for periods ending on or\ after December 15, 2021, by SAS No. 134.\]\ AU-C Sections 200--299 --- General Principles and Responsibilities 56\ © 2024 AICPA. All rights reserved. AU-C Sec. 210 --- Terms of Engagement Evaluate the appropriateness of accounting policies used and the reasonableness of\ significant accounting estimates made by management, as well as evaluate the overall\ presentation of the financial statements, including the disclosures, and whether the\ financial statements represent the underlying transactions and events in a manner\ that achieves fair presentation.\ Conclude, based on the audit evidence obtained, whether there are conditions\ or events, considered in the aggregate, that raise substantial doubt about ABC\ Company's ability to continue as a going concern for a reasonable period of time.\ Because of the inherent limitations of an audit, together with the inherent limitations of\ internal control, an unavoidable risk that some material misstatements may not be detected\ exists, even though the audit is properly planned and performed in accordance with GAAS.\ \[The responsibilities of management and identification of the applicable financial reporting\ framework\]\ Our audit will be conducted on the basis that \[management and, when appropriate, those\ charged with governance\]4 acknowledge and understand that they have responsibility\ a. for the preparation and fair presentation of the financial statements in accordance\ with accounting principles generally accepted in the United States of America;\ b. for the design, implementation, and maintenance of internal control relevant to the\ preparation and fair presentation 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 and fair presentation 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\ 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 \[management and, when appropriate,\ those charged with governance\], written confirmation concerning representations made to us\ in connection with the audit.\ \[Other relevant information\]\ \[Insert other information, such as fee arrangements, billings, and other specific terms, as\ appropriate.\]\ 4 Use terminology as appropriate in the circumstances. \[Footnote renumbered by the issuance of SAS No. 134,\ May 2019.\]\ 57 AU-C Sections 200--299 --- General Principles and Responsibilities\ AU-C Sec. 210 --- Terms of Engagement © 2024 AICPA. All rights reserved. \[Reporting\]\ \[Insert appropriate reference to the expected form and content of the auditor's report,\ including, when applicable, the reporting on other information in accordance with section\ 720, The Auditor's Responsibilities Relating to Other Information Included in Annual\ Reports. Example follows:\]\ We will issue a written report upon completion of our audit of ABC Company's financial\ statements. Our report will be addressed to the board of directors of ABC Company.\ Circumstances may arise in which our report may differ from its expected form and content\ based on the results of our audit. Depending on the nature of these circumstances, it may\ be necessary for us to modify our opinion, add an emphasis-of-matter paragraph or other-\ matter paragraph to our auditor's report, or if necessary, withdraw from the engagement.\ We also will issue a written report on \[insert appropriate reference to other auditor's reports\ expected to be issued\] upon completion of our audit.\ Please sign and return the attached copy of this letter to indicate your acknowledgment 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\ \[Signed\]\ \[Name and Title\]\ \[Date\]\ \[Paragraph renumbered and amended, effective for audits of financial statements for\ periods ending on or after December 15, 2021, by SAS No. 134. Paragraph subsequently\ renumbered and amended, effective for audits of financial statements for periods ending on\ or after December 15, 2021, by SAS No. 137. As amended, effective for audits of financial\ statements for periods ending on or after December 15, 2021, by SAS No. 138. Paragraph\ subsequently renumbered by the issuance of SAS No. 147, June 2022.\]\ AU-C Sections 200--299 --- General Principles and Responsibilities 58 Nature and Purposes of Audit Documentation\.02 Audit documentation that meets the requirements of this section and the specific\ documentation requirements of other relevant AU-C sections provides\ a. evidence of the auditor's basis for a conclusion about the achievement of the overall\ objectives of the auditor;1 and\ b. evidence that the audit was planned and performed in accordance with\ generally accepted auditing standards (GAAS) and applicable legal and regulatory\ requirements.\.03 Audit documentation serves a number of additional purposes, including the following:\ Assisting the engagement team to plan and perform the audit\ Assisting members of the engagement team responsible for supervision to direct and\ supervise the audit work and to discharge their review responsibilities in accordance\ with section 220A, Quality Control for an Engagement Conducted in Accordance With\ Generally Accepted Auditing Standards2\ Enabling the engagement team to demonstrate that it is accountable for its work\ by documenting the procedures performed, the audit evidence examined, and the\ conclusions reached\ Retaining a record of matters of continuing significance to future audits of the same\ entity\ Enabling the conduct of quality control reviews and inspections in accordance with\ QM section 10A, A Firm's System of Quality Control\ Enabling the conduct of external inspections or peer reviews in accordance with\ applicable legal, regulatory, or other requirements\ Assisting an auditor who reviews a predecessor auditor's audit documentation\ Assisting auditors to understand the work performed in the prior year as an aid in\ planning and performing the current engagement\ Effective Date\.04 This section is effective for audits of financial statements for periods ending on or after\ December 15, 2012.\ 1Paragraph.12 of section 200, Overall Objectives of the Independent Auditor and the Conduct of an Audit in\ Accordance With Generally Accepted Auditing Standards.\ 2Paragraphs.17--.19 of section 220A, Quality Control for an Engagement Conducted in Accordance With Generally\ Accepted Auditing Standards.\ 147 AU-C Sections 200--299 --- General Principles and Responsibilities\ AU-C Sec. 230 --- Audit Documentation © 2024 AICPA. All rights reserved. Objective\.05 The objective of the auditor is to prepare documentation that provides\ a. a sufficient and appropriate record of the basis for the auditor's report; and\ b. evidence that the audit was planned and performed in accordance with GAAS and\ applicable legal and regulatory requirements.\ Definitions\.06 For purposes of GAAS, the following terms have the meanings attributed as follows:\ Audit documentation. The record of audit procedures performed, audit evidence obtained,\ and conclusions the auditor reached (terms such as working papers or workpapers are also\ sometimes used).\ Audit file. One or more folders or other storage media, in physical or electronic form,\ containing the records that constitute the audit documentation for a specific engagement.\ Documentation completion date. The date, no later than 60 days following the report\ release date, on which the auditor has assembled for retention a complete and final set of\ documentation in an audit file.\ Experienced auditor. An individual (whether internal or external to the firm) who has\ practical audit experience, and a reasonable understanding of (Ref: par..A1)\ a. audit processes;\ b. GAAS and applicable legal and regulatory requirements;\ c. the business environment in which the entity operates; and\ d. auditing and financial reporting issues relevant to the entity's industry.\ Report release date. The date the auditor grants the entity permission to use the\ auditor's report in connection with the financial statements. (Ref: par..A2)\ \[As amended, effective for audits of financial statements for periods ending on or after\ December 15, 2022, by SAS No. 142.\]\ Requirements\ Timely Preparation of Audit Documentation\.07 The auditor should prepare audit documentation on a timely basis. (Ref: par..A3)\ AU-C Sections 200--299 --- General Principles and Responsibilities 148\ © 2024 AICPA. All rights reserved. AU-C Sec. 230 --- Audit Documentation Documentation of the Audit Procedures Performed and Audit Evidence\ Obtained\ Form, Content, and Extent of Audit Documentation\.08 The auditor should prepare audit documentation that is sufficient to enable an\ experienced auditor, having no previous connection with the audit, to understand (Ref:\ par..A4--.A7 and.A19--.A20)\ a. the nature, timing, and extent of the audit procedures performed to comply with\ GAAS and applicable legal and regulatory requirements; (Ref: par..A8--.A9)\ b. the results of the audit procedures performed, and the audit evidence obtained; and\ c. significant findings or issues arising during the audit, the conclusions reached\ thereon, and significant professional judgments made in reaching those conclusions.\ (Ref: par..A10--.A13)\.09 In documenting the nature, timing, and extent of audit procedures performed, the\ auditor should record\ a. the identifying characteristics of the specific items or matters tested; (Ref: par..A14)\ b. who performed the audit work and the date such work was completed; and\ c. who reviewed the audit work performed and the date and extent of such review. (Ref:\ par..A15)\.10 For audit procedures related to the inspection of significant contracts or agreements,\ the auditor should include abstracts or copies of those contracts or agreements in the audit\ documentation.\.11 The auditor should document discussions of significant findings or issues with\ management, those charged with governance, and others, including the nature of the\ significant findings or issues discussed, and when and with whom the discussions took\ place. (Ref: par..A16)\.12 If the auditor identified information that is inconsistent with the auditor's final\ conclusion regarding a significant finding or issue, the auditor should document how the\ auditor addressed the inconsistency. (Ref: par..A17--.A18)\ Departure From a Relevant Requirement\.13 If, in rare circumstances, the auditor judges it necessary to depart from a relevant\ presumptively mandatory requirement,3 the auditor must document the justification for the\ departure and how the alternative audit procedures performed in the circumstances were\ sufficient to achieve the intent of that requirement. (Ref: par..A21--.A22)\ 3Paragraph.26 of section 200.\ 149 AU-C Sections 200--299 --- General Principles and Responsibilities\ AU-C Sec. 230 --- Audit Documentation © 2024 AICPA. All rights reserved. Matters Arising After the Date of the Auditor's Report\.14 If, in rare circumstances, the auditor performs new or additional audit procedures or\ draws new conclusions after the date of the auditor's report, the auditor should document\ (Ref: par..A23)\ a. the circumstances encountered;\ b. the new or additional audit procedures performed, audit evidence obtained, and\ conclusions reached, and their effect on the auditor's report; and\ c. when and by whom the resulting changes to audit documentation were made and\ reviewed.\ Assembly and Retention of the Final Audit File\.15 The auditor should document the report release date in the audit documentation.\.16 The auditor should assemble the audit documentation in an audit file and complete the\ administrative process of assembling the final audit file on a timely basis, no later than 60\ days following the report release date. (Ref: par..A24--.A26)\.17 After the documentation completion date, the auditor should not delete or discard audit\ documentation of any nature before the end of the specified retention period. Such retention\ period, however, should not be shorter than five years from the report release date. (Ref:\ par..A27--.A29)\.18 In circumstances other than those addressed in paragraph.14 in which the auditor\ finds it necessary to modify existing audit documentation or add new audit documentation\ after the documentation completion date, the auditor should, regardless of the nature of the\ modifications or additions, document (Ref: par..A28)\ a. the specific reasons for making the changes; and\ b. when and by whom they were made and reviewed.\.19 The auditor should adopt reasonable procedures to maintain the confidentiality of client\ information.\ Application and Other Explanatory Material\ Definitions (Ref: par..06)\ Experienced Auditor\.A1 Having practical audit experience means possessing the competencies and skills that\ would have enabled the auditor to perform the audit but does not mean that the auditor is\ required to have performed comparable audits.\ AU-C Sections 200--299 --- General Principles and Responsibilities 150\ © 2024 AICPA. All rights reserved. AU-C Sec. 230 --- Audit Documentation Report Release Date\.A2 In many cases, the report release date will be the date the auditor delivers the audit\ report to the entity. When there are delays in releasing the report, a fact may become\ known to the auditor that, had it been known to the auditor at the date of the auditor's\ report, may have caused the auditor to revise the auditor's report. Section 560, Subsequent\ Events and Subsequently Discovered Facts, addresses the auditor's responsibilities in such\ circumstances, and paragraph.14 addresses the documentation requirements in the rare\ circumstances in which the auditor performs new or additional audit procedures or draws\ new conclusions after the date of the auditor's report.\ Timely Preparation of Audit Documentation (Ref: par..07)\.A3 Preparing sufficient and appropriate audit documentation on a timely basis throughout\ the audit helps to enhance the quality of the audit and facilitates the effective review\ and evaluation of the audit evidence obtained and conclusions reached before the auditor's\ report is finalized. Documentation prepared at the time such work is performed or shortly\ thereafter is likely to be more accurate than documentation prepared at a much later time.\ Documentation of the Audit Procedures Performed and Audit Evidence\ Obtained\ Form, Content, and Extent of Audit Documentation (Ref: par..08)\.A4 The form, content, and extent of audit documentation depend on factors such as\ the size and complexity of the entity.\ the nature of the audit procedures to be performed.\ the identified risks of material misstatement.\ the significance of the audit evidence obtained.\ the nature and extent of exceptions identified.\ the need to document a conclusion or the basis for a conclusion not readily\ determinable from the documentation of the work performed or audit evidence\ obtained.\ the audit methodology and tools used.\ the extent of judgment involved in performing the work and evaluating the results.\.A5 Audit documentation may be recorded on paper or on electronic or other media. QM\ section 10A addresses a firm's responsibility to establish procedures designed to maintain\ the integrity, accessibility, and retrievability of documentation; for example, when original\ paper documentation is electronically scanned or otherwise copied to another media for\ inclusion in the audit file.4 Examples of audit documentation include the following:\ 151 AU-C Sections 200--299 --- General Principles and Responsibilities\ AU-C Sec. 230 --- Audit Documentation © 2024 AICPA. All rights reserved. Audit plans5\ Analyses\ Issues memorandums\ Summaries of significant findings or issues\ Letters of confirmation and representation\ Checklists\ Correspondence (including e-mail) concerning significant findings or issues\.A6 The auditor need not include in audit documentation superseded drafts of working\ papers and financial statements, notes that reflect incomplete or preliminary thinking,\ previous copies of documents corrected for typographical or other errors, and duplicates of\ documents.\.A7 On their own, oral explanations by the auditor do not represent adequate support for\ the work the auditor performed or conclusions the auditor reached, but may be used to\ explain or clarify information contained in the audit documentation.\ Documentation of Compliance With GAAS (Ref: par..08a)\.A8 In principle, compliance with the requirements of this section will result in the audit\ documentation being sufficient and appropriate in the circumstances. Other AU-C sections\ contain specific documentation requirements that are intended to clarify the application\ of this section in the particular circumstances of those other AU-C sections. The specific\ documentation requirements of other AU-C sections do not limit the application of this\ section. Furthermore, the absence of a documentation requirement in any particular AU-C\ section is not intended to suggest that there is no documentation that will be prepared as a\ result of complying with that AU-C section.\.A9 Audit documentation provides evidence that the audit complies with GAAS. However,\ it is neither necessary nor practicable for the auditor to document every matter considered,\ or professional judgment made, in an audit. Further, it is unnecessary for the auditor to\ document separately (as in a checklist, for example) compliance with matters for which\ compliance is demonstrated by documents included within the audit file. For example:\ The existence of an adequately documented audit plan demonstrates that the auditor\ has planned the audit.\ The existence of a signed engagement letter in the audit file demonstrates that the\ auditor has agreed to the terms of the audit engagement with management or, when\ appropriate, those charged with governance.\ 4Paragraph.A58 of QM section 10A, A Firm's System of Quality Control.\ 5Paragraphs.07--.11 of section 300, Planning an Audit.\ AU-C Sections 200--299 --- General Principles and Responsibilities 152\ © 2024 AICPA. All rights reserved. AU-C Sec. 230 --- Audit Documentation An auditor's report containing an appropriately qualified opinion on the financial\ statements demonstrates that the auditor has complied with the requirement to\ express a qualified opinion under the circumstances in accordance with GAAS.\ Regarding requirements that apply generally throughout the audit, there may be a\ number of ways in which compliance with them may be demonstrated within the audit\ file:\ --- For example, there may be no single way in which the auditor's professional\ skepticism is documented. But the audit documentation may nevertheless\ provide evidence of the auditor's exercise of professional skepticism in accordance\ with GAAS, for example, in relation to accounting estimates, when the audit\ evidence obtained includes evidence that both corroborates and contradicts\ management's assertions, documenting how the auditor evaluated that evidence,\ including the professional judgments made in forming a conclusion about the\ sufficiency and appropriateness of the audit evidence obtained.\ --- Similarly, that the engagement partner has taken responsibility for the direction,\ supervision, and performance of the audit in compliance with GAAS may be\ evidenced in a number of ways within the audit documentation. This may\ include documentation of the engagement partner's timely involvement in\ aspects of the audit, such as participation in the team discussions required by\ section 315, Understanding the Entity and Its Environment and Assessing the\ Risks of Material Misstatement.6\ \[As amended, effective for audits of financial statements for periods ending on or after\ December 15, 2023, by SAS No. 143.\]\ Documentation of Significant Findings or Issues and Related Significant Professional\ Judgments (Ref: par..08c)\.A10 Judging the significance of a finding or issue requires an objective analysis of the facts\ and circumstances. Examples of significant findings or issues include\ matters involving the selection, application, and consistency of significant accounting\ practices, including related disclosures. Such matters include, but are not limited to\ (a) accounting for complex or unusual transactions or (b) accounting estimates and\ uncertainties and, if applicable, the related management assumptions.\ matters that give rise to significant risks (as defined in section 315).7\ results of audit procedures (including identification of corrected and uncorrected\ misstatements)8 indicating (a) that the financial statements could be materially\ 6Paragraph.33 of section 315, Understanding the Entity and Its Environment and Assessing the Risks of Material\ Misstatement.\ 7Paragraphs.28--.30 of section 315.\ 8See section 450, Evaluation of Misstatements Identified During the Audit.\ 153 AU-C Sections 200--299 --- General Principles and Responsibilities\ AU-C Sec. 230 --- Audit Documentation © 2024 AICPA. All rights reserved. misstated or (b) a need to revise the auditor's previous assessment of the risks of\ material misstatement and the auditor's responses to those risks.\ circumstances that cause the auditor significant difficulty in applying necessary audit\ procedures.\ findings that could result in a modification to the audit opinion or the inclusion of an\ emphasis-of-matter paragraph in the auditor's report.\.A11 An important factor in determining the form, content, and extent of audit\ documentation of significant findings or issues is the extent of professional judgment\ exercised in performing the work and evaluating the results. Documentation of the\ professional judgments made, when significant, serves to explain the auditor's conclusions\ and to reinforce the quality of the judgment. Such findings or issues are of particular\ interest to those responsible for reviewing audit documentation, including those carrying\ out subsequent audits when reviewing items of continuing significance (for example, when\ performing a retrospective review of accounting estimates).\.A12 Some examples of circumstances in which, in accordance with paragraph.08, it\ is appropriate to prepare audit documentation relating to the exercise of professional\ judgment include, when the findings, issues, and judgments are significant,\ the rationale for the auditor's conclusion when a requirement provides that the\ auditor should consider certain information or factors, and that consideration is\ significant in the context of the particular engagement.\ the basis for the auditor's conclusion on the reasonableness of areas of subjective\ judgments made by management.\ the basis for the auditor's evaluation of whether an accounting estimate and related\ disclosures are reasonable in the context of the applicable financial reporting\ framework or are misstated.\ the basis for the auditor's conclusions about the authenticity of a document when\ further investigation (such as making appropriate use of a specialist or of confirmation\ procedures) is undertaken in response to conditions identified during the audit that\ caused the auditor to believe that the document may not be authentic.\ when section 701, Communicating Key Audit Matters in the Independent Auditor's\ Report, applies, the auditor's determination of the key audit matters or the\ determination that there are no key audit matters to be communicated, including\ in the extremely rare circumstances in which the auditor determines that the matter\ should not be communicated in the auditor's report because the adverse consequences\ of doing so would reasonably be expected to outweigh the public interest benefits of\ such communication.\ \[As amended, effective for audits of financial statements for periods ending on or after\ December 15, 2021, by SAS No. 134. As amended, effective for audits of financial statements\ for periods ending on or after December 15, 2023, by SAS No. 143.\]\ AU-C Sections 200--299 --- General Principles and Responsibilities 154\ © 2024 AICPA. All rights reserved. AU-C Sec. 230 --- Audit Documentation.A13 The auditor may consider it helpful to prepare and retain as part of the audit\ documentation a summary (sometimes known as a completion memorandum) that describes\ the significant findings or issues identified during the audit and how they were addressed,\ or that includes cross-references to other relevant supporting audit documentation that\ provides such information. Such a summary may facilitate effective and efficient reviews\ and inspections of the audit documentation, particularly for large and complex audits.\ Further, the preparation of such a summary may assist the auditor's consideration of the\ significant findings or issues. It may also help the auditor to consider whether, in light of\ the audit procedures performed and conclusions reached, there is any individual relevant\ AU-C section objective that the auditor cannot achieve that would prevent the auditor from\ achieving the overall objectives of the auditor.\ Identification of Specific Items or Matters Tested and of the Preparer and the Reviewer\ (Ref: par..09)\.A14 Recording the identifying characteristics serves a number of purposes. For example,\ it improves the ability of the auditor to supervise and review the work performed and thus\ demonstrates the accountability of the engagement team for its work and facilitates the\ investigation of exceptions or inconsistencies. Identifying characteristics will vary with the\ nature of the audit procedure and the item or matter tested. For example:\ For a detailed test of entity-generated purchase orders, the auditor may identify the\ documents selected for testing by their dates and unique purchase order numbers.\ For a procedure requiring selection or review of all items over a specific amount from\ a given population, the auditor may record the scope of the procedure and identify the\ population (for example, all journal entries over a specified amount from the journal\ register for the period being audited).\ For a procedure requiring systematic sampling from a population of documents, the\ auditor may identify the documents selected by recording their source, the starting\ point, and the sampling interval (for example, a systematic sample of shipping reports\ selected from the shipping log for the period from April 1 to September 30, starting\ with report number 12345 and selecting every 125th report).\ For a procedure requiring inquiries of specific entity personnel, the auditor may record\ the inquiries made, the dates of the inquiries, and the names and job designations of\ the entity personnel.\ For an observation procedure, the auditor may record the process or matter being\ observed, the relevant individuals, their respective responsibilities, and where and\ when the observation was carried out.\.A15 Section 220A requires the auditor to review the audit work performed through\ review of the audit documentation.9 The requirement to document who reviewed the audit\ work performed and the extent of the review, in accordance with the firm's policies and\ procedures addressing review responsibilities, does not imply a need for each specific\ 9Paragraph.19 of section 220A.\ 155 AU-C Sections 200--299 --- General Principles and Responsibilities\ AU-C Sec. 230 --- Audit Documentation © 2024 AICPA. All rights reserved. working paper to include evidence of review. The requirement, however, means documenting\ what audit work was reviewed, who reviewed such work, and when it was reviewed.\ Documentation of Discussions of Significant Findings or Issues With Management, Those\ Charged With Governance, and Others (Ref: par..11)\.A16 The audit documentation is not limited to documents prepared by the auditor but\ may include other appropriate documents such as minutes of meetings prepared by the\ entity's personnel and recognized by the auditor as an appropriate summary of the meeting.\ Others with whom the auditor may discuss significant findings or issues may include other\ personnel within the entity, and external parties, such as persons providing professional\ advice to the entity.\ Documentation of How Inconsistencies Have Been Addressed (Ref: par..12)\.A17 The requirement to document how the auditor addressed inconsistencies in\ information does not imply that the auditor needs to retain documentation that is incorrect\ or superseded.\.A18 The documentation of the inconsistency may include, but is not limited to, procedures\ performed in response to the information, and documentation of consultations on, or\ resolutions of, differences in professional judgment among members of the engagement\ team or between the engagement team and others consulted.\ Considerations Specific to Smaller, Less Complex Entities (Ref: par..08)\.A19 The audit documentation for the audit of a smaller, less complex entity is generally\ less extensive than that for the audit of a larger, more complex entity. Further, in the\ case of an audit in which the engagement partner performs all the audit work, the\ documentation will not include matters that might have to be documented solely to inform\ or instruct members of an engagement team, or to provide evidence of review by other\ members of the team (for example, there will be no matters to document relating to\ team discussions or supervision). Nevertheless, the engagement partner complies with\ the overriding requirement in paragraph.08 to prepare audit documentation that can be\ understood by an experienced auditor, as the audit documentation may be subject to review\ by external parties for regulatory or other purposes.\.A20 When preparing audit documentation, the auditor of a smaller, less complex entity\ may also find it helpful and efficient to record various aspects of the audit together in\ a single document, with cross-references to supporting working papers as appropriate.\ Examples of matters that may be documented together in the audit of a smaller, less\ complex entity include the understanding of the entity and its environment, the applicable\ financial reporting framework, and the entity's system of internal control; the overall audit\ strategy and audit plan; materiality; assessed risks, significant findings or issues noted\ during the audit; and conclusions reached. \[As amended, effective for audits of financial\ statements for periods ending on or after December 15, 2023, by SAS No. 145.\]\ AU-C Sections 200--299 --- General Principles and Responsibilities 156\ © 2024 AICPA. All rights reserved. AU-C Sec. 230 --- Audit Documentation Departure From a Relevant Requirement (Ref: par..13)\.A21 The requirements of GAAS are designed to enable the auditor to achieve the objectives\ specified in GAAS, and thereby the overall objectives of the auditor. Accordingly, other than\ in rare circumstances, GAAS call for compliance with each requirement that is relevant in\ the circumstances of the audit.\.A22 The documentation requirement applies only to requirements that are relevant in the\ circumstances. A requirement is not relevant10 only in the cases in which\ a. the AU-C section is not relevant (for example, if an entity does not have an internal\ audit function, nothing in section 610, Using the Work of Internal Auditors, is\ relevant); or\ b. the requirement is conditional and the condition does not exist (for example, the\ requirement to modify the auditor's opinion when there is an inability to obtain\ sufficient appropriate audit evidence, and there is no such inability).\ \[As amended, effective for audits of financial statements for periods ending on or after\ December 15, 2014, by SAS No. 128.\]\ Matters Arising After the Date of the Auditor's Report (Ref: par..14)\.A23 Examples of rare circumstances in which the auditor performs new or additional audit\ procedures or draws new conclusions after the date of the auditor's report include\ when, after the date of the auditor's report, the auditor becomes aware of facts that\ existed at that date and which, if known at that date, might have caused the financial\ statements to be revised or the auditor to modify the opinion in the auditor's report.11\ when the auditor concludes that procedures necessary at the time of the audit,\ in the circumstances then existing, were omitted from the audit of the financial\ information.12\ The resulting changes to the audit documentation are reviewed in accordance with the\ firm's quality control procedures as required by QM section 10A.\ Assembly and Retention of the Final Audit File (Ref: par..16--.18)\.A24 Statutes, regulations, or the audit firm's quality control policies may specify a period of\ time shorter than 60 days following the report release date in which this assembly process is\ to be completed.\ 10Paragraph.24 of section 200.\ 11Paragraphs.12 and.15 of section 560, Subsequent Events and Subsequently Discovered Facts.\ 12Paragraph.07 of section 585, Consideration of Omitted Procedures After the Report Release Date.\ 157 AU-C Sections 200--299 --- General Principles and Responsibilities\ AU-C Sec. 230 --- Audit Documentation © 2024 AICPA. All rights reserved..A25 Certain matters, such as auditor independence and staff training, which are not\ engagement specific, may be documented either centrally within a firm or in the audit\ documentation for an audit engagement.\.A26 The completion of the assembly of the final audit file after the date of the auditor's\ report is an administrative process that does not involve the performance of new audit\ procedures or the drawing of new conclusions. Changes may, however, be made to the\ audit documentation during the final assembly process if they are administrative in nature.\ Examples of such changes include\ deleting or discarding superseded documentation.\ sorting, collating, and cross-referencing working papers.\ signing off on completion checklists relating to the file assembly process.\ documenting audit evidence that the auditor has obtained, discussed, and agreed with\ the relevant members of the engagement team before the date of the auditor's report.\ adding information received after the date of the auditor's report; for example, an\ original confirmation that was previously communicated electronically.\.A27 Firms are required to establish policies and procedures for the retention of\ engagement documentation.13 Statutes, regulations, or the audit firm's quality control\ policies may specify a retention period longer than five years.\.A28 An example of a circumstance in which the auditor may find it necessary to modify\ existing audit documentation or add new audit documentation after the documentation\ completion date is the need to clarify existing audit documentation arising from comments\ received during monitoring inspections performed by internal or external parties.\.A29 Audit documentation is the property of the auditor, and some states recognize this\ right of ownership in their statutes. The auditor may make available to the entity at the\ auditor's discretion copies of the audit documentation, provided such disclosure does not\ undermine the effectiveness and integrity of the audit process.\ 13Paragraph.50 of QM section 10A.\ AU-C Sections 200--299 --- General Principles and Responsibilities 158\ © 2024 AICPA. All rights reserved. AU-C Sec. 230 --- Audit Documentation AU-C Section 300\ Planning an Audit\ Source: SAS No. 122; SAS No. 128; SAS No. 134; SAS No. 145.\ Effective for audits of financial statements for periods ending on or after\ December 15, 2012, unless otherwise indicated.\ Note\ In June 2022, the ASB issued SAS No. 146, Quality Management for\ an Engagement Conducted in Accordance With Generally Accepted Auditing\ Standards, which contains amendments to this section.\ The amendments are effective for engagements conducted in accordance\ with generally accepted auditing standards for periods beginning on or after\ December 15, 2025, and can be viewed in the appendix of section 220 until the\ effective date, when they will be applied to this section.\ In March 2023, the ASB issued SAS No. 149, Special Considerations --- Audits\ of Group Financial Statements (Including the Work of Component Auditors and\ Audits of Referred-to Auditors), which contains amendments to this section.\ The amendments are effective for audits of financial statements for periods\ ending on or after December 15, 2026, and can be viewed in appendix C of\ section 600 until the effective date, when they will be applied to this section.\ Introduction\ Scope of This Section\.01 This section addresses the auditor's responsibility to plan an audit of financial\ statements. This section is written in the context of recurring audits. Additional\ considerations in an initial audit engagement are separately identified in this section.\ Matters related to planning audits of group financial statements are addressed in section\ 600A, Special Considerations---Audits of Group Financial Statements (Including the Work of\ Component Auditors). (Ref: par..A1--.A3)\ AU-C Sections 300--499 --- Risk Assessment and Response to Assessed Risks 2\ © 2024 AICPA. All rights reserved. AU-C Sec. 300 --- Planning an Audit The Role and Timing of Planning\.02 Planning an audit involves establishing the overall audit strategy for the engagement\ and developing an audit plan. Adequate planning benefits the audit of financial statements\ in several ways, including the following:\ Helping the auditor identify and devote appropriate attention to important areas of\ the audit\ Helping the auditor identify and resolve potential problems on a timely basis\ Helping the auditor properly organize and manage the audit engagement so that it is\ performed in an effective and efficient manner\ Assisting in the selection of engagement team members with appropriate levels of\ capabilities and competence to respond to anticipated risks and allocating team\ member responsibilities\ Facilitating the direction and supervision of engagement team members and the\ review of their work\ Assisting, when applicable, in coordination of work done by auditors of components\ and specialists\ Effective Date\.03 This section is effective for audits of financial statements for periods ending on or after\ December 15, 2012.\ Objective\.04 The objective of the auditor is to plan the audit so that it will be performed in an\ effective manner.\ Requirements\ Involvement of Key Engagement Team Members\.05 The engagement partner and other key members of the engagement team should be\ involved in planning the audit, including planning and participating in the discussion\ among engagement team members. (Ref: par..A4--.A5)\ Preliminary Engagement Activities\.06 The auditor should undertake the following activities at the beginning of the current\ audit engagement:\ 3 AU-C Sections 300--499 --- Risk Assessment and Response to Assessed Risks\ AU-C Sec. 300 --- Planning an Audit © 2024 AICPA. All rights reserved. a\. Performing procedures required by section 220A, Quality Control for an Engagement\ Conducted in Accordance With Generally Accepted Auditing Standards, regarding the\ continuance of the client relationship and the specific audit engagement\ b. Evaluating compliance with relevant ethical requirements in accordance with section\ 220A\ c. Establishing an understanding of the terms of the engagement as required by section\ 210A, Terms of Engagement (Ref: par..A6--.A8)\ Planning Activities\.07 The auditor should establish an overall audit strategy that sets the scope, timing, and\ direction of the audit and that guides the development of the audit plan.\.08 In establishing the overall audit strategy, the auditor should\ a. identify the characteristics of the engagement that define its scope;\ b. ascertain the reporting objectives of the engagement in order to plan the timing of\ the audit and the nature of the communications required;\ c. consider the factors that, in the auditor's professional judgment, are significant in\ directing the engagement team's efforts;\ d. consider the results of preliminary engagement activities and, when applicable,\ whether knowledge gained on other engagements performed by the engagement\ partner for the entity is relevant; and\ e. ascertain the nature, timing, and extent of resources necessary to perform the\ engagement. (Ref: par..A9--.A13)\.09 The auditor should develop an audit plan that includes a description of the following:\ a. The nature and extent of planned risk assessment procedures, as determined under\ section 315A, Understanding the Entity and Its Environment and Assessing the Risks\ of Material Misstatement\ b. The nature, timing, and extent of planned further audit procedures at the relevant\ assertion level, as determined under section 330, Performing Audit Procedures in\ Response to Assessed Risks and Evaluating the Audit Evidence Obtained\ c. Other planned audit procedures that are required