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

Anand & Associates, auditors of Surya Steels Ltd, are asked to continue as auditors, but midway through the year management requests a change in the engagement terms from an audit to a review engagement, which gives lower assurance. The auditor finds no reasonable justification except that the audit is costly and a qualification looks likely on inventory. What is the correct response under SA 210?

The auditor should refuse the change because avoiding a likely qualification is not reasonable justification. If the original audit cannot continue, the auditor should withdraw where law permits and communicate the circumstances to those charged with governance, rather than agreeing to a lower-assurance engagement or backdating any letter.

  1. AAgree to the change, as clients may choose the assurance level
  2. BAgree to the change but backdate the review engagement letter to the start of the year
  3. CNot agree to the change if there is no reasonable justification, and if unable to continue the audit, withdraw where permitted and report the circumstances to those charged with governanceCorrect
  4. DAgree to the change and ignore the inventory issue since review work is limited

Explanation

SA 210 allows a change to a lower level of assurance only with reasonable justification. A wish to avoid a modified opinion is not valid. If the auditor cannot agree to the change and management does not permit continuing the original audit, the auditor should withdraw where permitted and communicate the matter to those charged with governance. Backdating is improper.

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