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

Meera & Co. are auditors of Sagar Foods Ltd. Management asks that, for the coming year, the audit engagement be changed to a review engagement, which gives lower assurance, because the audit fees are high. No change in circumstances has occurred that affects the entity's requirements. As per SA 210, how should the auditor respond?

The auditor should not agree merely because management finds the fees high. Under SA 210, a change to an engagement with lower assurance needs reasonable justification, and a fee concern is not one. Where the audit is required by law, as for a company, it cannot be replaced by a review.

  1. AAgree to the change immediately since the client is entitled to choose the level of assurance
  2. BAgree only if there is reasonable justification for the change; a request on the ground of fee alone is not reasonable justification, particularly where an audit is required by lawCorrect
  3. CAgree if the audit report is later revised to mention the review
  4. DAgree provided the review engagement is carried out at the same fees

Explanation

SA 210 says that before agreeing to change an engagement to one providing a lower level of assurance, the auditor must be satisfied there is reasonable justification. A change based on fees is not reasonable justification, and for a company the statutory audit is mandatory. The other options ignore this requirement.

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