Auditing and Ethics · Ethics and Terms of Audit Engagements

Recurring Audits, Changes in Terms and Acceptance of Change (SA 210)

Updated 4 October 2026 · Fact-checked

SA 210 says that in recurring audits the auditor need not send a fresh engagement letter each year unless circumstances show the terms need revising. If a client asks to change terms, especially to a lower assurance level, the auditor accepts only if there is reasonable justification.

Understand Recurring Audits, Changes in Terms and Acceptance of Change

An engagement letter records the agreed terms of an audit. In a recurring audit, the same auditor audits the same entity year after year. Sending a new letter every year is not always needed. The auditor may decide to send a fresh letter only when something has changed.

SA 210 lists situations where the auditor should consider revising the terms and sending a new letter. Examples: any indication that the entity misunderstands the audit objective and scope, any revised or special terms, a recent change of senior management, a significant change in ownership, a significant change in the nature or size of the business, a change in legal or regulatory requirements, a change in the financial reporting framework, and a change in other reporting requirements.

Now think about a change in terms. Before completing the audit, the client may ask to change the engagement to one with a lower level of assurance. For example, from an audit to a review, or to an agreed-upon procedures or compilation engagement. The auditor must not agree without reasonable justification.

A reasonable justification is a change in circumstances that affects the entity's need for the service, or a misunderstanding about the nature of the original engagement. A request is not justified if it arises from information that is incorrect, incomplete or otherwise unsatisfactory. Examples are an attempt to avoid a modified opinion, or a restriction the management imposes on the audit work.

If the auditor agrees to change, the new engagement is a different one. The auditor must check that audit evidence gathered so far is still relevant to the new engagement. The new terms must be recorded in a new engagement letter or other suitable written agreement. The report issued for the changed engagement should not refer to the original audit engagement or procedures performed in it, except where the new engagement is agreed-upon procedures and those procedures are described in the report.

If the auditor cannot agree to the change and management does not allow the audit to continue, the auditor should withdraw where the law permits. The auditor should also discuss with those charged with governance and consider any obligation to report the circumstances to other parties, such as owners or regulators.

Key rules to remember

Recurring audits rule: Fresh engagement letter = needed only if circumstances suggest revised terms; No automatic yearly letter. The auditor decides based on changes and records the reason.
Factors to consider for revising terms: Misunderstanding of scope | special terms | change in management | change in ownership | change in nature or size of business | change in law | change in framework | change in other reporting; Learn these as a list. Questions often give a scenario and ask which factor applies.
Acceptance test for a change: Change accepted = reasonable justification exists; Without reasonable justification, the auditor must not agree to a lower assurance level.
Examples of reasonable justification: Change in circumstances affecting the need for the service OR misunderstanding about the nature of the original engagement; Not justified if the reason is incorrect, incomplete or unsatisfactory information.
If change is not agreed: Withdraw (where law permits) + tell those charged with governance + consider reporting obligations; If the auditor cannot continue the original audit and management does not permit it, withdraw where law permits and consider any obligation to report the circumstances to others.

How to solve Recurring Audits, Changes in Terms and Acceptance of Change questions

Use this order for any scenario question on recurring audits or a request to change terms.

1Identify the type of question: is it about a recurring audit letter, or a request to change the engagement?
2For recurring audits, scan the facts for changes such as new management, new ownership, change in business, law or framework.
3If any such change exists, conclude that the auditor should consider revising the terms and sending a fresh letter. If none, no new letter is needed.
4For a change request, find what the client wants: a lower assurance level or other change in scope.
5Ask if there is reasonable justification: a real change in circumstances or a genuine misunderstanding. Reject reasons such as avoiding a modified opinion or management-imposed limits.
6State the action: accept, record in a new written agreement, and check the relevance of evidence already obtained; or refuse.
7If refused and the client will not let the audit continue, state withdrawal where the law permits, discussion with those charged with governance and consideration of reporting duties.
8Close with a one-line conclusion that answers the exact question asked.

Quickest way: Justification-first check

When to use it: Use for MCQs and short case questions where you must decide whether the auditor can accept a change.

MCQ: read the reason for the change. If the reason is to avoid a modified opinion or arises from a management-imposed restriction or incorrect, incomplete or unsatisfactory information, eliminate options that say accept.
Look for key phrases: reasonable justification, written agreement, evidence relevance. These usually mark the correct option.
For recurring audit MCQs, eliminate options saying a fresh letter is mandatory every year.
Written answer format: Provision (SA 210 rule) - Facts (the client's reason) - Conclusion (accept or decline, with the follow-up action).
Write 3 to 4 clear points. Each point earns a step mark.

Common mistakes in Recurring Audits, Changes in Terms and Acceptance of Change

Saying a new engagement letter must be sent every year in a recurring audit.
Students link good practice with a mandatory rule.
Fix: Write that the auditor may send a fresh letter only when circumstances call for revised terms.
Accepting a change to a review engagement just because the client requests it.
Students think the client decides the scope.
Fix: State that the auditor needs reasonable justification before agreeing to any lower assurance level.
Treating the wish to avoid a modified opinion as a valid reason.
The reason sounds like a business need.
Fix: Remember that a request arising from incorrect, incomplete or unsatisfactory information is not a reasonable justification.
Forgetting to record the new terms in writing.
Students stop at the decision to accept.
Fix: Always add that the new terms go into a new engagement letter or other suitable written agreement.
Ignoring the evidence gathered before the change request.
Students focus only on the new engagement.
Fix: Add that the auditor must consider whether earlier audit evidence remains relevant to the changed engagement.
Stopping at refusal and leaving out withdrawal and reporting steps.
Students stop once they decide not to accept the change.
Fix: Add withdrawal where the law permits, discussion with those charged with governance and consideration of reporting obligations.

Worked examples

Example 1

M/s PQR & Co. has audited Sunrise Ltd. for three years. In the current year, Sunrise Ltd. has a new managing director and has started a new line of business that doubles its turnover. Must the auditor send a fresh engagement letter?

Show the solution

Rule: in a recurring audit, the auditor may decide not to send a fresh letter unless circumstances suggest the terms need revising.
Facts: there is a change in senior management and a significant change in the nature and size of the business.
Both are listed factors that may call for revised terms.
Therefore the auditor should consider revising the terms and send a fresh engagement letter.

Answer: Yes. The change in senior management and the significant change in the nature and size of the business are factors for which the auditor should consider revising the terms and issue a fresh engagement letter.

Example 2

During the audit of Alpha Ltd., the management asks the auditor to change the engagement to a review engagement because the audit may lead to a modified opinion on inventory. Can the auditor accept the request?

Show the solution

Rule: before completing an audit, the auditor must not agree to change to a lower assurance engagement without reasonable justification.
Reasonable justification means a change in circumstances affecting the need for the service, or a misunderstanding about the nature of the original engagement.
Facts: the reason is to avoid a possible modified opinion. This is not a change in circumstances or a misunderstanding.
A request that arises from incorrect, incomplete or unsatisfactory information is not justified.
Conclusion: the auditor should not accept the change. If management does not allow the audit to continue, the auditor should withdraw where the law permits. The auditor should also discuss the matter with those charged with governance and consider any obligation to report to other parties.

Answer: No. Avoiding a modified opinion is not a reasonable justification. The auditor should decline, withdraw if the audit cannot continue and the law permits, inform those charged with governance and consider reporting obligations.

Exam tips

For recurring audits, learn the list of factors for revising terms. A case question usually hides one or two of them in the facts.
In a change-of-terms case, always use the phrase reasonable justification and then test the client's reason against it.
Never write that the auditor may accept the change just to keep the client. Link every decision to the rule.
If you accept the change in the answer, add the written agreement and evidence relevance points. They are easy step marks.
In MCQs, options with words like always or must every year are usually wrong for recurring audits.

Practice questions from Ethics and Terms of Audit Engagements

Recurring Audits, Changes in Terms and Acceptance of Change: frequently asked questions

Is a fresh engagement letter required every year in a recurring audit?

No. SA 210 allows the auditor to decide that a fresh letter is not needed each year. The auditor should send one when circumstances suggest the terms need revising, such as a change in management, ownership or law.

Can an auditor accept a change from audit to review under SA 210?

Only if there is reasonable justification. This means a change in circumstances affecting the need for the service or a misunderstanding about the original engagement. The change must also be recorded in writing.

What is not a reasonable justification for changing the terms?

A request that arises from information that is incorrect, incomplete or otherwise unsatisfactory is not justified. Trying to avoid a modified opinion or imposing a restriction on the audit work are examples.

What should the auditor do if management refuses to let the original audit continue?

The auditor should withdraw from the engagement where the law permits. The auditor should also discuss the matter with those charged with governance and consider whether there is any obligation to report to others, such as owners or regulators.