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

Mehta & Co. are auditors of Zenith Steels Pvt. Ltd. During the year, management requests the firm to change the engagement from an audit to a review engagement that provides limited assurance, citing cost savings. No reasonable justification beyond cost is offered, and the audit is a statutory audit under the Companies Act, 2013. What is the correct response of the auditor?

The auditor should not agree to the change. A statutory audit under the Companies Act is mandatory, and SA 210 does not permit moving to a lower-assurance engagement without reasonable justification. Cost savings are not sufficient, and a revised letter or committee approval cannot override the legal requirement.

  1. AAgree to the change, since the client has the right to choose the engagement type
  2. BAgree only if the change is recorded in a revised engagement letter, even for a statutory audit
  3. CNot agree to the change, since a statutory audit required by law cannot be replaced by a lower-level engagementCorrect
  4. DAgree to the change if the audit committee approves it, without any other consideration

Explanation

SA 210 says the auditor should not agree to a change to an engagement providing a lower level of assurance without reasonable justification. A statutory audit is required by law, so it cannot be replaced by a review. Merely documenting the change in a letter does not make it permissible.

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