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

CA Nandini was appointed auditor of Kaveri Foods Ltd. for a second year. The terms of engagement were agreed in the first year, and nothing has changed in the entity, its management or the regulatory requirements. What is the appropriate action under SA 210?

On a recurring audit the auditor may choose not to issue a new engagement letter and rely on the earlier terms. The auditor must still assess whether circumstances such as changes in management, business or legal requirements call for revised terms or a reminder of the existing terms under SA 210.

  1. AShe must issue a fresh engagement letter every year, since a letter cannot be carried forward
  2. BShe may decide not to send a new engagement letter and may rely on the earlier terms, while considering whether circumstances require the terms to be revised or the entity reminded of themCorrect
  3. CShe need not have any engagement letter at all in any year, because the appointment under the Companies Act replaces it
  4. DShe must obtain the letter only from the Registrar of Companies

Explanation

SA 210 states that on recurring audits the auditor may decide not to send a new engagement letter each period, but should assess whether circumstances (such as changes in terms, management, nature of business or legal requirements) require revising the terms or reminding the entity of existing terms. Option 0 is wrong because a fresh letter every year is not mandatory. Option 2 is wrong because the statutory appointment does not remove the need for agreed terms.

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