The following drafting conventions apply to guidance material included in this GS:

Words such as “should”, “shall” or “must”, or any other term that denotes something as a mandatory requirement, are not to be used, except when repeating or referring to the requirements from relevant AUASB Standards.

Guidance supports the general requirements and application and explanatory material contained in AUASB Standards, and:

does not extend the requirements of the public sector auditor/assurance practitioner as stated in the AUASB Standards;

refers to the requirements in the AUASB Standards to which the guidance is supplementary; and

is consistent with the relevant AUASB Standards the guidance relates to.

The present tense of verbs is used when it is the best form of expression. Use of the present tense does not create or imply mandatory requirements.

The word “including” means a list of items or examples is provided but the list does not purport to contain all relevant items or examples and intentionally is not exhaustive.

This section of the GS provides supplementary application and other explanatory material in relation to selected issues identified as presenting challenges in applying Auditing Standard ASA 210 Agreeing the Terms of Audit Engagements in the public sector. It does not contain any further requirements for the conduct of the audit. It is to be read and applied together with ASA 210.

ASA 210 deals with the auditor’s responsibilities in agreeing the terms of the audit engagement with management and, where appropriate, those charged with governance. This includes:

establishing that certain preconditions for an audit are present before accepting the engagement; and

confirming that there is a common understanding between the auditor and the entity of the terms of the audit engagement.

The preconditions for an audit are defined in ASA 210, paragraph 4, to mean the use by management of an acceptable financial reporting framework in the preparation of the financial report and the agreement of management to the premise on which an audit is conducted.

In the public sector, law or regulation governing the operations of public sector audits generally mandate the appointment of a public sector auditor and commonly set out the public sector auditor’s responsibilities, functions and powers, including the power to access an entity’s records and other information. Law or regulation may also prescribe other aspects of the terms of the audit engagement, including the objective and scope of the audit and the responsibilities of management. ASAs do not override law or regulation in such matters.

Where the public sector financial audit is mandated by legislation, the public sector auditor cannot avoid such an obligation and, consequently, may not be in a position to not accept (that is, to decline) or not continue (that is, to withdraw from) the engagement. The public sector auditor may be required to perform these types of audits whether or not the ASA 210 preconditions for the audit exist and whether or not management’s agreement on the terms of the engagement has been obtained.

Consequently, the use of engagement letters may not be a widespread practice in the public sector for audits mandated by legislation. Nevertheless, there may be benefit in communicating a common understanding of the terms of the audit engagement between the auditor who is carrying out the audit and those charged with governance of the public sector entity, to avoid misunderstandings with respect to the engagement and to provide for an efficient and quality audit to be carried out.

Use of ASA 210 terminology such as to “accept” or “continue” an audit engagement, or to “agree” the terms of an engagement with management may be problematic in the public sector context for audits mandated by law or regulation.

This section of the GS provides additional guidance to reflect the public sector perspective on ‘agreeing’ the terms of financial audit engagements undertaken in the public sector.