## Auditor's Duty When Management Requests a Change in Terms of Audit Engagement

When management asks to change the Terms of Audit Engagement (ToAE), the auditor must follow a structured decision process before accepting or refusing.

### Decision Framework

Step 1 – Obtain the reasons for the requested change

Always understand why the change is being asked for before acting.

Step 2 – Evaluate whether the justification is reasonable

Situation	Auditor's Action
Reasonable justification given	(a) Accept the change and document the reasons; (b) Enter into a Revised Letter of Engagement (LOE)
No reasonable justification	Refuse to accept the change

Step 3 – If management refuses to allow continuation after the auditor's refusal

The auditor must:

1. Withdraw (resign) from the engagement

2. Communicate the matter to TCWG (Those Charged with Governance)

3. Report to shareholders and regulatory authorities

### Key Principle

Management cannot demand a scope reduction without sound justification. Requests to downgrade an audit without reason are a red flag — often an attempt to limit scrutiny. The auditor's duty to users of financial statements takes precedence over management convenience.

Worked example

### Example 1

Scenario: Mid-audit, a company's management requests changing the engagement from a statutory audit to a review engagement, citing cost savings as the reason. Should the auditor accept?

Analysis: No. Cost-saving alone is not a reasonable justification for downgrading audit scope. This could indicate an attempt to avoid scrutiny of a specific area. The auditor should refuse. If management does not permit continuation, the auditor must: (1) resign, (2) communicate to TCWG, and (3) report to shareholders and regulatory authorities.

### Example 2

Scenario: An auditor is engaged for a full audit but the client later provides a letter explaining a court order requiring a change in reporting framework, necessitating revisions to the engagement terms. Is this reasonable justification?

Analysis: Yes. A regulatory or legal requirement is a legitimate reason for change. The auditor should (1) accept the change, (2) document the court order as the reason, and (3) issue a Revised Letter of Engagement reflecting the updated terms.

⚠️ Common exam mistakes

Skipping Step 1 — auditors must obtain reasons before either accepting or refusing the change
Forgetting to document reasons even when the change IS accepted with reasonable justification
Treating resignation as the end of obligations — post-withdrawal reporting to TCWG, shareholders, and regulators is still mandatory
Assuming any business reason is 'reasonable justification' — the reason must genuinely explain why the change is necessary, not just convenient

Reference: SA 210, paras 14–16 — SA 210 – Agreeing the Terms of Audit Engagements (ICAI)

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SA 210 – Change in Terms of Audit Engagement (ToAE)

Worked example

⚠️ Common exam mistakes