Skip to content

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

Mehta & Associates, a firm of Chartered Accountants, has been appointed statutory auditor of Kaveri Textiles Ltd. Before the audit begins, the management asks the auditor to sign the engagement letter only after the audit is completed so that the terms can be 'adjusted to the findings'. Under SA 210, what is the correct audit response?

The auditor should agree the terms of engagement in writing with management or those charged with governance before the audit begins. SA 210 requires this to prevent misunderstandings about scope and responsibilities, so signing the letter after the audit is completed is not acceptable.

  1. AAgree, since the engagement letter is only a formality that can be signed after the report
  2. BAgree the terms of engagement with management or those charged with governance before commencement of the audit, to avoid misunderstandingsCorrect
  3. CSkip the letter because a statutory audit is governed entirely by the Companies Act
  4. DObtain the letter only from the previous auditor

Explanation

SA 210 requires the auditor to agree the terms of the audit engagement with management or those charged with governance, and record them in an engagement letter or other written form, before the audit commences. Signing after the audit defeats the purpose of avoiding misunderstandings. Statutory duties do not remove the need for written terms.

Did you get it right without looking?

One question tells you little. A timed set on Ethics and Terms of Audit Engagements shows your real accuracy, how long you take and where you lose marks.

Practise Ethics and Terms of Audit EngagementsFree diagnostic mock

More Ethics and Terms of Audit Engagements questions