Normally the change is neither requested nor required by the client in the terms of audit engagement once they have been agreed at the start. The reason is that terms are agreed upon after detailed discussion and giving proper thought both by the auditor and client. But circumstances may arise in which client may think that it is appropriate to change the terms of audit engagement which may amount to change the type engagement altogether i.e. from audit engagement to review engagement or related services engagement.
However, if the client is convinced that terms which were agreed earlier now require changes then its up to the auditor to whether to accept such changes or not.
International Standard on Auditing ISA 210 Agreeing The Terms of Audit Engagement is very clear in stating that:
The auditor shall not agree to a change in the terms of the audit engagement where there is no reasonable justification for doing so.
So it is up to the auditor to analyse whether the request to change is justified given the circumstances of the engagement or not. If the reason given is not unjustified in the eyes of the auditor then auditor shall not agree to the changes in the terms of audit engagement and he cannot be forced to accept them either.
However, there are certain circumstances where client i.e. management or where applicable those charged with governance may request auditor to change the terms of engagement which if comes with reasonable justification then auditor can accept to change the terms of audit engagement. Such circumstances are as follows:
- change in circumstances affecting the need for the service
- a misunderstanding as to the nature of an audit as originally requested
- a restriction on the scope of the audit engagement, whether imposed by management or caused by other circumstances
In simple words, auditing standards realise that such circumstances may arise where change is justified. For example, circumstances may change in such a way that original service requested from the practitioner is no longer required and needs to be changed. For example, management and auditor agreed upon audit engagement but later circumstances changed and audit of financial statements is no longer required. Another reason which can be considered as justified is where auditor and/or client misunderstood the requirements of engagement while agreeing and management later realised that the terms agreed initially are not what was required actually. For example, management intended to request for assurance on prospective information and terms agreed were of review engagement.
However, changes to the terms of engagement are considered unjustified if the reason is based upon such information which is unreliable i.e. incorrect, incomplete or otherwise unsatisfactory. Most often management request to change the terms of audit engagement when it is expected that auditor will issue either a qualified or adverse report. Any request to change to avoid or circumvent unfavourable auditor’s report is also unjustified.