## Terms of Engagement in Recurring Audit

### What is a Recurring Audit?

A recurring audit is one performed by the same auditor over multiple years for the same client. Unlike a first-time engagement, the auditor and client already have an established relationship.

### Key Obligation

Even in a recurring engagement, the auditor must reassess annually whether:

1. The existing engagement terms need to be revised, or

2. The entity simply needs to be reminded of the existing terms.

> This reassessment is not optional — it is a professional obligation under SA 210.

### Triggers Requiring Revision or Reminder

Category	Specific Trigger
Understanding	Entity misunderstands the objective/scope of audit
Terms	Revised or special terms introduced
Management	Recent change in senior management
Ownership	Significant change in ownership
Business	Significant change in nature or size of business
Legal/Regulatory	Change in legal or regulatory requirements
Reporting Framework	Change in Financial Reporting Framework (e.g., shift from Ind AS to AS)
Other Reporting	Change in other reporting requirements

### Why This Matters

If the terms are not revisited, there is a risk that the auditor performs work under outdated assumptions — potentially leading to scope gaps, misunderstandings with management, or non-compliance with updated legal requirements.

Worked example

### Example 1

Example 1: An auditor has been auditing ABC Ltd. for 5 years. During the current year, the company was acquired by a foreign multinational and its financial reporting framework changed from Indian GAAP to Ind AS. Should the engagement letter be revised?

Answer: Yes. A change in Financial Reporting Framework is explicitly listed as a factor requiring revision of engagement terms. The auditor must issue a revised engagement letter reflecting the new reporting standards, updated audit scope, and any additional procedures required under Ind AS.

### Example 2

Example 2: XYZ Pvt. Ltd. has been audited by the same firm for 3 years. No changes occurred in the business, management, ownership, or regulations. Is the auditor still required to reassess the engagement terms?

Answer: Yes. The auditor must still perform the annual reassessment. In this case, since no triggers are present, the auditor may simply remind the entity of the existing terms rather than revising them. A new engagement letter is not mandatory if no circumstances have changed.

⚠️ Common exam mistakes

Assuming engagement terms from Year 1 remain valid indefinitely without reassessment.
Confusing 'revising' terms with 'reminding' — revision is needed only when circumstances change; reminding is the minimum annual obligation.
Overlooking the trigger of 'change in senior management' — students often focus only on ownership or business changes.
Treating a change in the Financial Reporting Framework as a minor administrative matter rather than a mandatory trigger for revision.

Bare-Act text Recurring Audits · SA 210 — Agreeing the Terms of Audit Engagements (ICAI) · click to expand

On recurring audits, the auditor shall assess whether the circumstances require the terms of the audit engagement to be revised and whether there is a need to remind the entity of the existing terms of the audit engagement.

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