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

Ravi & Co., Chartered Accountants, have been approached by Zenith Foods Ltd to audit its financial statements for the first time. Before accepting, the firm wants to follow the first step prescribed for a new engagement. Which action is most appropriate at this stage under the Code of Ethics and SA 210?

The auditor should first examine eligibility and communicate with the previous auditor before accepting the appointment. Terms must then be agreed and recorded in a written engagement letter before audit work starts, because SA 210 requires agreed terms to be documented and not left oral or deferred until the report stage.

  1. AStart the audit fieldwork immediately and agree the terms later
  2. BCommunicate with the existing or previous auditor and ensure the audit terms and eligibility are examined before accepting the appointmentCorrect
  3. CIssue the engagement letter only after completing the audit report
  4. DAccept the appointment orally and skip any written terms

Explanation

Before accepting a new audit, the incoming auditor should check eligibility, communicate with the previous auditor as required, and then agree terms in an engagement letter. Starting fieldwork first or relying on oral terms is contrary to SA 210, which requires agreed terms to be recorded in writing before the audit begins.

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