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

During the audit of Kaveri Foods Ltd., the engagement team finds that the audit engagement letter signed two years ago remains unchanged. The company has now added a new subsidiary and the Board has changed the audit scope by asking the auditor to additionally certify a government subsidy claim. Under SA 210, what is the most appropriate auditor response?

The auditor should consider whether the terms of engagement need revision and, since the scope has changed with an additional certification and a new subsidiary, issue an updated or fresh engagement letter. Relying on the old letter automatically is wrong under SA 210 where circumstances warrant revised terms.

  1. AContinue with the old letter because an engagement letter once issued applies to all future periods automatically
  2. BConsider whether the terms need revision and, where the terms change, issue a new or updated engagement letter reflecting the revised termsCorrect
  3. CReplace the engagement letter only when the auditor intends to resign
  4. DDisclose the changes only in the audit report under Other Matter paragraph

Explanation

SA 210 requires the auditor to assess whether circumstances call for revising the terms of engagement and whether to remind the entity of existing terms. A changed scope, such as an additional certification, warrants a revised or fresh letter. Treating the old letter as automatically sufficient ignores this, and the Other Matter paragraph is not the place for engagement terms.

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