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

Sharma & Associates, auditors of Kaveri Foods Ltd., have been engaged for several years. For the current year, management has not changed any significant aspect of the engagement or the entity's circumstances. The partner asks whether a fresh engagement letter must be issued every year. What is the correct position under SA 210?

On recurring audits the auditor need not issue a new letter every year. The auditor assesses whether circumstances require revising the terms and may remind the entity of the existing terms. A fresh letter is needed only when factors indicate that the terms should be revised.

  1. AA new engagement letter must be issued every year without exception
  2. BThe auditor may decide to send a reminder of the existing terms on recurring audits, unless factors suggest the terms need revisingCorrect
  3. CNo engagement letter is needed after the first year, and the auditor need not consider any reminder
  4. DThe engagement letter is required only for listed companies, not for other entities

Explanation

SA 210 says that on recurring audits the auditor assesses whether circumstances require the terms to be revised and whether to remind the entity of the existing terms. A fresh letter is therefore not mandatory every year if nothing has changed. Saying no letter or consideration is needed ignores the auditor's duty to assess circumstances.

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