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

Deepak & Associates audit Nilgiri Tea Ltd. for several years. In the current year, management requests a change of the engagement to a review engagement before the audit is completed, citing cost. No reasonable justification beyond cost is given, and the auditor has already obtained substantial audit evidence. Under SA 210, what should the auditor do?

Deepak & Associates should agree to the change only if there is reasonable justification, after considering the audit work already performed and its legal implications. A request based merely on cost is generally not sufficient, so automatic acceptance or silent resignation would be wrong under SA 210.

  1. AAgree to the change immediately since the client has the right to decide
  2. BAgree to the change and use the audit evidence already obtained as review evidence without further consideration
  3. CAgree only if there is reasonable justification, considering the work already done, and not ignore the audit evidence obtained to dateCorrect
  4. DRefuse and resign from the engagement without informing anyone

Explanation

SA 210 requires that before agreeing to change to an engagement offering a lower level of assurance, the auditor must determine whether there is reasonable justification. Cost alone is not usually reasonable, and the auditor must consider the effect on the work already done, including legal and contractual implications. Immediate agreement ignores this test, and silent resignation ignores the reporting obligations.

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