Auditing and EthicsMCQQuestion 5894 of 300
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According to SA 210, 'Agreeing the Terms of Audit Engagements', which of the following is a 'Precondition for an Audit' that the auditor must establish before accepting the audit engagement?

Select Your Answer (Keyboard: A, B, C, D)
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Correct Answer

✅ Option B — Determining whether the financial reporting framework to be applied in the preparation of the financial statements is acceptable

All Options:

  • AObtaining management's agreement that the financial statements will show a net profit
  • BDetermining whether the financial reporting framework to be applied in the preparation of the financial statements is acceptable ✓
  • CObtaining written guarantee that the auditor will face no civil or criminal liabilities
  • DEnsuring internal audit team reports directly to the statutory auditor

Detailed Solution & Explanation

Preconditions for an Audit under SA 210:
1. **Acceptable Framework**: The auditor must determine whether the **financial reporting framework** (e.g. Ind AS, AS, Schedule III) is acceptable in view of the nature of the entity and the purpose of financial statements.
2. **Management Responsibilities**: The auditor must obtain management's written acknowledgement of its responsibility for:
- Preparation of financial statements in accordance with applicable framework.
- Internal control necessary to enable financial statements free from material misstatement.
- Providing auditor with unrestricted access to all information and personnel.
Hence, **Option B** is the correct answer.

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