## SA 210 — Revising the LOE in Recurring Audits

### General Rule

In recurring audits, the auditor need not send a new engagement letter every year. However, certain changes make it appropriate to either:

Revise the existing LOE, or
Remind the entity of the existing terms

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### 8 Circumstances That Trigger LOE Revision/Reminder

#	Circumstance	Δ = Change
(a)	Entity misunderstands the scope of the audit	Not a change — a clarification need
(b)	Δ Terms of the audit engagement	Change to agreed scope or conditions
(c)	Δ Management	New management may not know the terms
(d)	Δ Ownership	New owners may have different expectations
(e)	Δ Size of entity's business	Significant growth/contraction changes scope
(f)	Δ Laws	New legislation may change audit requirements
(g)	Δ FRF	Change in applicable reporting framework
(h)	Δ Audit Report	Change in form/content of the audit report

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### Key Concept: Change in Terms vs Change in Scope

If a client requests a change in the terms of engagement mid-audit, the auditor must consider:

Is there a reasonable justification for the change?
If the change would result in a scope limitation leading to a modified opinion, the change should generally not be agreed to.

> Mnemonic for 8 circumstances: M-T-M-O-S-L-F-A-R

> Misunderstanding, Terms change, Management change, Ownership change, Size change, Laws change, FRF change, Audit Report change

Worked example

### Example 1

Change in Management:

XYZ Ltd has a new CFO who was not part of the company when the original engagement letter was signed three years ago. The auditor should send a revised or reminder LOE to ensure the new CFO understands the scope of the audit and management's responsibilities. Without this, the new management may have incorrect expectations about what the audit covers.

Change in FRF:

A company transitions from Indian GAAP to Ind AS. This is a change in the applicable financial reporting framework (circumstance g). The auditor must revise the LOE to reflect that the audit will now be conducted in accordance with Ind AS requirements, as the scope of procedures will change significantly.

### Example 2

Misunderstanding of Scope:

Management of PQR Ltd asks the auditor why she did not detect certain GST compliance failures. Management believes the statutory audit includes GST compliance testing. This is a misunderstanding of scope (circumstance a) — the auditor should issue a revised LOE or clarification letter making clear that the scope of the statutory audit does not include detailed GST compliance testing.

⚠️ Common exam mistakes

Stating that the auditor must issue a new LOE every year in recurring audits — this is incorrect; an LOE is not mandatory annually unless circumstances change.
Listing fewer than all 8 circumstances — exam questions may ask to 'list factors' with marks for each.
Confusing 'change in management' with 'change in ownership' — these are separate circumstances (c) and (d); a new CFO is management change; a new majority shareholder is ownership change.
Forgetting that misunderstanding of scope triggers a reminder (not necessarily a full revision) — it is still listed as a relevant circumstance.
Not linking change in laws to LOE revision — when new legislation affects audit requirements (e.g., new CARO requirements), the scope in the LOE needs updating.

Reference:

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When to Revise the LOE in Recurring Audit Engagements

Worked example

⚠️ Common exam mistakes