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

During the audit of Himalaya Cements Ltd, after the engagement letter was signed, the management requests CA Dev to change the engagement to a review engagement with lower assurance. The stated reason is that the company wishes to save fees; the audit is not statutory. Which assessment is correct under SA 210?

The auditor should agree to the change only if reasonable justification exists. Under SA 210, requests driven by scope restrictions or to avoid a modified opinion are not reasonable. Signing a new letter alone does not suffice, and the auditor must consider the effect on the engagement and any reports already issued.

  1. AAgree immediately, since the client has the right to choose any engagement
  2. BRefuse, since an engagement can never be changed once the letter is signed
  3. CAgree without considering any justification if the new terms are signed in writing
  4. DAgree only if there is reasonable justification; a request based on a restriction on scope, or a misstatement found, or merely avoiding a modified opinion would not be reasonable justification, and the auditor must consider the effect on the engagementCorrect

Explanation

SA 210 requires that the auditor must not agree to a change to a lower level of assurance engagement unless there is reasonable justification. A change due to a circumstance that affects the entity's requirements or a misunderstanding about the nature of service is reasonable; one driven by a scope limitation or avoidance of audit evidence is not. A mere preference signed in writing does not satisfy this condition, and an absolute refusal is not what the SA says.

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