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CS Professional · Compliance Management, Audit and Due Diligence · Audit Engagement

Verma & Co. is asked by Bharat Steels Ltd. to audit its financial statements. Management's proposed terms bar the auditor from observing inventory and from confirming receivables, and the auditor believes this limitation would force a disclaimer of opinion. No law requires the engagement to be accepted. What should the auditor do under SA 210?

The auditor should not accept the engagement as an audit. When management imposes a scope limitation in the proposed terms that the auditor believes will lead to a disclaimer of opinion, SA 210 prohibits acceptance, unless law or regulation requires it, which is not the case here.

  1. AAccept the engagement and disclaim an opinion in the report
  2. BAccept the engagement but charge a higher fee for the limited scope
  3. CNot accept the limited engagement as an audit engagementCorrect
  4. DAccept the engagement for one year and review the limitation next year

Explanation

SA 210 says that if management imposes a scope limitation in the proposed terms such that the auditor believes it will result in a disclaimer of opinion, the auditor shall not accept it as an audit engagement, unless law or regulation requires it. Here no law requires acceptance, so accepting and disclaiming is wrong.

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