Skip to content

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

CA Nisha has been the auditor of Himalaya Foods Ltd., an unlisted company, for two years. The company's management now asks her to change the audit engagement to a review engagement (which gives lower assurance) halfway through the year, because the audit fee is high. There is no change in circumstances affecting the company's need for an audit, and the audit is required by the Companies Act. Under SA 210, what should CA Nisha do?

CA Nisha should refuse the change. SA 210 permits moving to a lower-assurance engagement only with reasonable justification, and fee pressure is not one. Additionally, the company's audit is required by the Companies Act, so a review engagement cannot substitute for it, even with a board resolution.

  1. AAgree, since the client is free to choose the level of assurance it wants
  2. BAgree, provided the audit work done to date is documented and billed separately
  3. CNot agree to the change, because there is no reasonable justification for it and a statutory audit cannot be replaced by a reviewCorrect
  4. DAgree if the board passes a resolution approving the change

Explanation

SA 210 says the auditor should not agree to a change to an engagement providing lower assurance without reasonable justification. A change due to fee pressure is not reasonable, and a statutory audit under the Companies Act cannot be replaced by a review. A board resolution cannot override the statutory requirement.

Did you get it right without looking?

One question tells you little. A timed set on Ethics and Terms of Audit Engagements shows your real accuracy, how long you take and where you lose marks.

Practise Ethics and Terms of Audit EngagementsFree diagnostic mock

More Ethics and Terms of Audit Engagements questions