## Recurring Audit and Change in Terms of Engagement
### Recurring Audit – Do You Send EL Every Year?
In a recurring audit (continuous audit by the same auditor), the auditor may not send an engagement letter every year.
However, the auditor should revise or remind the client of existing terms in the following circumstances:
| Trigger | Example |
|---|---|
| Change in senior management | New CFO/CEO appointed |
| Significant change in ownership | Promoter sells majority stake |
| Significant change in nature or size of operations | Company diversifies or expands significantly |
| Change in legal or regulatory requirements | New Companies Act provision applies |
| Change in FRF | Shift from IGAAP to Ind AS |
| Indication that client has misunderstood objective/scope of audit | Client thinks auditor will detect all frauds |
| Any revised or special terms of engagement | Fee restructuring, new reporting requirements |
> SA 510 reference: Initial audit engagements involve opening balances where another auditor performed the prior-year audit.
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### Acceptance of Change in Terms of Audit Engagement
Sometimes the client requests a downgrade from audit to a lower-assurance engagement (e.g., review). The auditor must evaluate whether a reasonable justification exists.
#### Three Cases
Case (A) – Change in circumstances:
Client's circumstances have changed, affecting the need for the original level of service.
→ Auditor may consider accepting the change.
Case (B) – Misunderstanding:
Client misunderstood the nature of the audit as originally requested.
→ Auditor may consider accepting the change.
Case (C) – Restriction on scope:
Management or other circumstances restrict the scope of audit engagement.
→ Auditor must particularly consider the implications of the restriction on scope.
→ If restriction would lead to a Qualified or Disclaimer opinion, a request to change to Review may be the client's attempt to escape that opinion – this is NOT a reasonable justification.
#### Key Rule on 'Not Reasonable'
A change is not considered reasonable if it appears the change relates to information that is:
- Inaccurate, or
- Not satisfactory
Classic Example:
Auditor is unable to obtain SAAE (Sufficient Appropriate Audit Evidence) about debtors → likely Qualified/Disclaimer opinion → Management requests change from Audit to Review to avoid this → Auditor should NOT accept this request.
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### Steps Before Agreeing to Change
1. Determine whether reasonable justification exists
2. Assess any legal or contractual implications of the change
3. If justification exists → change may be accepted
4. Issue revised engagement letter (new EL)
5. Old work, if relevant, can be used under the revised engagement
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### Non-Agreement to Change in Terms
If management does not permit the auditor to continue the original audit engagement:
Auditor shall:
a) Withdraw from the audit engagement
b) Determine whether there is any obligation to report to other parties such as:
- Owners
- Regulators
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### Report on Related Services – Important Distinction
When shifting from Audit to a Related Service (e.g., Agreed-Upon Procedures or Review):
- The report on related services should NOT include reference to:
- Original audit procedures
- Any procedure performed in the original audit engagement
- EXCEPTION: When shift is from Audit to Agreed-Upon Procedures → reference to procedures performed is a normal part of such a report.