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

M/s Rao & Associates, Chartered Accountants, have been invited to audit Kaveri Textiles Ltd. Before accepting, the engagement partner finds that management wants the audit completed but refuses to let the auditor access the company's board minutes and bank statements. Which is the most appropriate response of the auditor under SA 210?

The auditor should decline the engagement. Under SA 210, access to all relevant information such as minutes and bank statements is a precondition for an audit. When management refuses this access at the outset, the preconditions are absent and a disclaimer would likely result, so acceptance is inappropriate.

  1. AAccept the engagement and treat the missing records as a limitation to be reported in the audit report
  2. BAccept the engagement but reduce the audit fee to reflect the limited scope
  3. CDecline the engagement, since a precondition for an audit, access to all information relevant to the financial statements, is not presentCorrect
  4. DAccept the engagement and rely on management representations for the minutes and bank balances

Explanation

SA 210 requires the auditor to establish that preconditions for an audit exist, including management's agreement to provide access to all information relevant to preparing the financial statements. If management imposes a limitation that will likely lead to a disclaimer of opinion, the auditor should not accept the engagement. Accepting and reporting a limitation later is wrong because the limitation is known in advance.

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