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

Before accepting an audit engagement, Mehta & Co., a firm of chartered accountants, finds that the prospective client's management wants the audit to be conducted but expects the auditor to accept a restriction that prevents the auditor from examining the minutes of board meetings. Which response best fits the requirement of SA 210 on preconditions of an audit?

The auditor should not accept the engagement as an audit if management's limitation on scope, such as denying access to board minutes, would force a disclaimer of opinion. SA 210 treats such an imposed limitation as making the engagement unacceptable, so accepting and disclaiming later is not the correct response.

  1. AAccept the engagement and disclose the restriction in the engagement letter only
  2. BAccept the engagement and issue a disclaimer of opinion at the end of the year
  3. CNot accept the engagement as a statutory audit if the management-imposed limitation will lead to a disclaimer of opinionCorrect
  4. DAccept the engagement after reducing the audit fee

Explanation

SA 210 says that if management or those charged with governance impose a limitation on the scope of work in the terms of a proposed engagement such that the auditor would have to disclaim an opinion, the auditor should not accept it as an audit engagement. For a statutory audit, law requires the audit, so the auditor should not accept a restricted scope. Accepting and disclaiming later (option 2) is wrong because it knowingly accepts an unacceptable limitation.

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