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CA Intermediate · Auditing and Ethics · Ethics and Terms of Audit Engagements

Anand & Associates audit Zenith Pharma Ltd. The engagement letter for the current year has been signed. Midway, management asks the auditor to change the engagement to a review engagement, which provides lower assurance, citing the cost of an audit. Under SA 210, what should the auditor do first?

The auditor should first consider whether there is reasonable justification for the change and should not agree without it. SA 210 treats a request to move to lower assurance seriously; cost alone is not normally sufficient, and a statutory audit cannot be replaced by a review.

  1. AAccept the request immediately since the client is entitled to choose the engagement type
  2. BConsider whether there is reasonable justification for the request, and not agree to the change without itCorrect
  3. CComplete the audit and issue a review report in addition
  4. DWithdraw from the engagement and report to the Registrar of Companies

Explanation

SA 210 provides that before agreeing to change to an engagement with a lower level of assurance, the auditor must consider whether there is reasonable justification. A change due to a misunderstanding of the nature of the engagement or a restriction of scope is not justified. Cost alone is not normally reasonable justification, and in a statutory audit the change is not permissible as the audit is mandated by law.

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