Terms of Engagement

1 Terms of Engagement109AU-C Section 210 Terms of EngagementSource: SAS No. 122; SAS No. 134; SAS No. 135; SAS No. 137; SASNo. for audits of financial statements for periods ending on orafter December 15, 2012, unless otherwise of This section addresses the auditor's responsibilities in agreeing uponthe Terms of the audit Engagement with management and, when appropriate,those charged with governance. This includes establishing that certain pre-conditions for an audit, for which management and, when appropriate, thosecharged with governance are responsible, are present. Section 220,Quality Con-trol for an Engagement Conducted in Accordance With Generally Accepted Au-diting Standards, addresses those aspects of Engagement acceptance that arewithin the control of the auditor. (Ref: par..A1)Effective section is effective for audits of financial statements for periodsending on or after December 15, objective of the auditor is to accept an audit Engagement for a newor existing audit client only when the basis upon which it is to be performedhas been agreed upon whether the preconditions for an audit are that a common understanding of the Terms of the au-dit Engagement exists between the auditor and management and,when appropriate, those charged with purposes of generally accepted auditing standards (GAAS), the fol-lowing Terms have the meanings attributed as follows:Preconditions for an use by management of an accept-able financial reporting framework in the preparation and fairpresentation of the financial statements and the agreement ofmanagement and, when appropriate, those charged with gover-nance, to the premise1on which an audit is.

2 05 and .A2 of section 200,Overall Objectives of the Independent Auditor and theConduct of an Audit in Accordance With Generally Accepted Auditing Standards. 2021, AICPAAU-C Principles and ResponsibilitiesRecurring audit Engagement for an existing audit clientfor whom the auditor performed the preceding purposes of this section, references tomanagementaretobereadhereafter as "management and, when appropriate, those charged with gover-nance" unless the context suggests for an order to establish whether the preconditions for an audit arepresent, the auditor whether the financial reporting framework to be ap-plied in the preparation of the financial statements is acceptableand (Ref: par..A2 .A8) the agreement of management that it acknowledges andunderstands its responsibility (Ref: par..A9 .A12 and .A18)i. for the preparation and fair presentation of the financialstatements in accordance with the applicable financial re-porting framework ; (Ref: par.)

3 A13)ii. for the design, implementation, and maintenance of inter-nal control relevant to the preparation and fair presen-tation of financial statements that are free from materialmisstatement, whether due to fraud or error; and (Ref: .A16)iii. to provide the auditor with(1) access to all information of which management isaware that is relevant to the preparation and fairpresentation of the financial statements, such asrecords, documentation, and other matters;(2) additional information that the auditor may re-quest from management for the purpose of the au-dit; and (Ref: par..A17)(3) unrestricted access to persons within the entityfrom whom the auditor determines it necessaryto obtain audit evidence.[As amended, effective for audits of financial statements for periods ending onor after December 15, 2021, by SAS No. 137.]Management-Imposed Limitation on Scope Prior to Audit EngagementAcceptance That Would Result in a Disclaimer of management or those charged with governance of an entity that isnot required by law or regulation to have an audit impose a limitation on thescope of the auditor's work in the Terms of a proposed audit Engagement , suchthat the auditor believes the limitation will result in the auditor disclaiming anopinion on the financial statements as a whole, the auditor should not acceptsuch a limited Engagement as an audit Engagement .

4 If management or thosecharged with governance of an entity that is required by law or regulation tohave an audit imposes such a scope limitation and a disclaimer of opinion isacceptable under the applicable law or to the regulator, the auditor is permitted,but not required, to accept the Engagement . (Ref: par..A19 .A20)AU-C 2021, AICPAT erms of Engagement111 Other Factors Affecting Audit Engagement the preconditions for an audit are not present, the auditor shoulddiscuss the matter with management. Unless the auditor is required by law orregulation to do so, the auditor should not accept the proposed audit the auditor has determined that the financial reporting frame-work to be applied in the preparation of the financial statementsis unacceptable the agreement referred to in paragraph .06bhas not been on Audit Engagement auditor should agree upon the Terms of the audit Engagement withmanagement or those charged with governance, as appropriate.

5 (Ref: par..A21 .A22).10 The agreed-upon Terms of the audit Engagement should be documentedin an audit Engagement letter or other suitable form of written agreement andshould include the following: (Ref: par..A23 .A28) objective and scope of the audit of the financial responsibilities of the responsibilities of statement that because of the inherent limitations of an audit,together with the inherent limitations of internal control, an un-avoidable risk exists that some material misstatements may notbe detected, even though the audit is properly planned and per-formed in accordance with of the applicable financial reporting framework forthe preparation of the financial to the expected form and content of any reports to beissued by the auditor and a statement that circumstances mayarise in which a report may differ from its expected form and con-tent (Ref: par..A25)[As amended, effective for audits of financial statements for periods ending onor after December 15, 2021, by SAS No.]

6 134.]Initial Audits, Including Reaudit accepting an Engagement for an initial audit, including a reau-dit Engagement , the auditor should request management to authorize the pre-decessor auditor to respond fully to the auditor's inquiries regarding mattersthat will assist the auditor in determining whether to accept the management refuses to authorize the predecessor auditor to respond, or lim-its the response, the auditor should inquire about the reasons and consider theimplications of that refusal in deciding whether to accept the auditor should evaluate the predecessor auditor's response, or con-sider the implications if the predecessor auditor provides no response or alimited response, in determining whether to accept the Engagement . (Ref: .A34) 2021, AICPAAU-C Principles and ResponsibilitiesRecurring recurring audits, the auditor should assess whether circumstancesrequire the Terms of the audit Engagement to be revised.

7 If the auditor con-cludes that the Terms of the preceding Engagement need not be revised for thecurrent Engagement , the auditor should remind management of the Terms ofthe Engagement , and the reminder should be documented. (Ref: par..A35 .A36)Acceptance of a Change in the Terms of the Audit auditor should not agree to a change in the Terms of the auditengagement when no reasonable justification for doing so exists. (Ref: par..A37 .A39).15If, prior to completing the audit Engagement , the auditor is requestedto change the audit Engagement to an Engagement for which the auditor obtainsa lower level of assurance, the auditor should determine whether reasonablejustification for doing so exists. (Ref: par..A40 .A41).16If the Terms of the audit Engagement are changed, the auditor andmanagement should agree on and document the new Terms of the engagementin an Engagement letter or other suitable form of written the auditor concludes that no reasonable justification for a change ofthe Terms of the audit Engagement exists and is not permitted by managementto continue the original audit Engagement , the auditor from the audit Engagement when possible under appli-cable law or regulation, the circumstances to those charged with gover-nance, whether any obligation, either legal, contractual, orotherwise, exists to report the circumstances to other parties, suchas owners, or Considerations in Engagement AcceptanceAuditor s Report Prescribed by Law or law or regulation prescribes a specific layout, form, or wording of theauditor's report that significantly differs from the requirements of GAAS.

8 Theauditor should users might misunderstand the auditor's report and, ifso, the auditor would be permitted to reword the prescribedform to be in accordance with the requirements of GAAS or attacha separate the auditor determines that rewording the prescribed form or attaching aseparate report would not be permitted or would not mitigate the risk of usersmisunderstanding the auditor's report, the auditor should not accept the auditengagement unless the auditor is required by law or regulation to do so. Anaudit performed in accordance with such law or regulation does not complywith GAAS. Accordingly, for such an audit, the auditor should not include any2 Paragraphs .22 .23 of section 800,Special Considerations Audits of financial Statements Pre-pared in Accordance With Special Purpose 2021, AICPAT erms of Engagement113reference to the audit having been performed in accordance with GAAS withinthe auditor's (Ref: par..A42 .A43)Application and Other Explanatory MaterialScope of This Section (Ref: par.)

9 01).A1 The auditor's responsibilities regarding relevant ethical requirementsin the context of the acceptance of an audit Engagement , insofar as they arewithin the control of the auditor, are addressed in section 220. This section ad-dresses those matters (or preconditions) that are within the control of the entityand upon which it is necessary for the auditor and the entity's management for an AuditThe financial Reporting framework (Ref: par..06a).A2An applicable financial reporting framework provides the criteria formanagement to present the financial statements of an entity, including the fairpresentation of those financial statements. The criteria used by the auditor toevaluate or measure the subject matter, including, when relevant, a basis forpresentation and disclosure, are also provided by the financial reporting frame-work. These criteria enable reasonably consistent evaluation or measurementof a subject matter within the context of professional an acceptable financial reporting framework , managementdoes not have an appropriate basis for the preparation of the financial state-ments, and the auditor does not have suitable criteria for auditing the financialstatements.

10 In many cases, the auditor may presume that the applicable finan-cial reporting framework is acceptable, as described in paragraphs .A6 . the Acceptability of the financial Reporting that are relevant to the auditor's determination of the accept-ability of the financial reporting framework to be applied in the preparation ofthe financial statements include the following: The nature of the entity (for example, whether it is a businessenterprise, a governmental entity, or a not-for-profit organization) The purpose of the financial statements (for example, whetherthey are prepared to meet the common financial informationneeds of a wide range of users) The nature of the financial statements (for example, whether thefinancial statements are a complete set of financial statements ora single financial statement) Whether law or regulation prescribes the applicable financial re-porting users of financial statements are not in a position to demandfinancial statements tailored to meet their specific information needs.