Skip to content

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

CA Tanvi is auditing Girnar Foods Ltd for the second year. The terms of engagement were agreed in the first year's letter, and nothing has changed in the entity or the legal requirements. Under SA 210, what should she do regarding the engagement letter for the current year?

She need not issue a new letter each year, but must assess whether circumstances call for revising the terms or reminding the entity of existing terms. SA 210 allows recurring audits to rely on the earlier letter when nothing material has changed.

  1. ASend a fresh letter every year without exception
  2. BShe may decide not to send a new letter, but should consider whether circumstances require the terms to be revised and the entity reminded of existing termsCorrect
  3. CCancel the old letter, since an engagement letter is valid for only one year by law
  4. DObtain a new letter only if the audit fee has been revised by more than 50%

Explanation

SA 210 says on recurring audits the auditor may decide not to send a new engagement letter each period, but should assess whether circumstances require revising the terms or reminding the entity of existing terms. A fresh letter every year is therefore not mandatory. There is no legal one-year validity and no 50% fee rule.

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