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Changes in Engagement letter

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA AA Exams › Changes in Engagement letter

  • This topic has 1 reply, 2 voices, and was last updated 5 years ago by Kim Smith.
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  • August 29, 2019 at 12:24 pm #543698
    utsavlt
    Participant
    • Topics: 31
    • Replies: 4
    • ☆

    According to Kaplan test, it is necessary to review the engagement letter each year for the older clients and there has to be changes if there are changes in ISA’s and if required by new legislation.

    Does the engagement letter has to be changed
    1. If there are changes in the financial reporting standards?
    2. If the auditor found that the financials are to be prepared on break-up basis for not being a going concern ?
    3. If the management or law requires to prepare financials on different standards than the previous year ?

    Please, can you explain what does happens in the individual case ?
    (Sorry I unknowingly posted this on ACCA Forum too.)

    August 30, 2019 at 7:03 am #543789
    Kim Smith
    Keymaster
    • Topics: 133
    • Replies: 8297
    • ☆☆☆☆☆

    ISA 210 states “On recurring audits, the auditor shall assess whether 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.”
    The application material goes on to suggest factors that may make it appropriate to revise the terms, including:
    – a significant change in nature or size of the entity’s business (so a decision to wind down the business would fall into this);
    – a change in legal or regulatory requirements (so including ISAs);
    – a change in the financial reporting framework (so IFRSs would fall under this).
    It would depend on the nature of changes and how they affect the reporting entity and whether it really has any bearing on the audit engagement.
    It also says that the terms should be revised or the entity reminded of existing terms (by reissue of the engagement letter) if there is a significant change in senior management or ownership.

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