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

During the audit of Bharat Steel Ltd., the auditor, CA Menon, is asked by management before the audit is completed to change the engagement to a review engagement that provides limited assurance. Management gives no reasonable justification, only saying that it wants to reduce the cost. What is the correct response under SA 210?

The auditor should refuse the change where no reasonable justification exists. If the original audit engagement cannot continue, SA 210 requires the auditor to withdraw where law permits and to consider whether any obligation exists to report the circumstances to those charged with governance or other parties.

  1. AAgree to the change, as the client is free to choose the type of engagement
  2. BAgree to the change but not mention it in the new report
  3. CRefuse to agree to the change where there is no reasonable justification, and if unable to continue the audit, withdraw where permitted and consider reporting obligationsCorrect
  4. DContinue the audit but issue an adverse opinion as a penalty

Explanation

Under SA 210, an auditor should not agree to a change in the terms of engagement where there is no reasonable justification. If the auditor is not permitted to continue the original audit, the auditor should withdraw where possible under law and consider whether there is an obligation to report the circumstances. Issuing an adverse opinion as a penalty is not an appropriate response.

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