Changing the Terms of an Audit Mid-Engagement: Justification, Documentation and When to Withdraw

The request often comes in January. The client has seen the first draft of the budget, or a lender has relaxed its requirement, or the audit has turned up problems, and the owner asks whether the firm can "just do a review instead." The auditor has to decide whether there is a reasonable justification for changing the terms, and the answer depends on why the client wants the change. This post sets out the decision path. The initial letter is covered in audit engagement letter, and the standard is summarized at AU-C 210. For the comparison of service levels see compilation, review and audit.

The rule

The auditor does not agree to a change in the terms of the engagement where there is no reasonable justification for doing so. If, before completing the audit, the auditor is asked to change to an engagement that conveys a lower level of assurance, such as a review or a compilation, the auditor determines whether there is reasonable justification. If the terms change, the auditor and management agree on and record the new terms in an engagement letter or other written agreement. If the auditor cannot agree to the change and management does not allow the original audit to continue, the auditor withdraws where law and regulation allow, communicates the circumstances to those charged with governance and determines whether any legal, contractual or other obligation exists to report them to others, such as owners or regulators.

What counts as justification

A reasonable justification is a change in circumstances that affects the need for the service, or a misunderstanding about the nature of the original service. A request that comes from a limitation on the scope of the audit, imposed or caused by management, is not.

If the auditor could not obtain sufficient evidence because of a limitation, the answer to a request to avoid that limitation by changing to a review is no. Changing the terms to hide the issue conceals a matter the auditor knows about.

The decision path

1. Ask why. Write down the reason in the client's words and the date of the request.
2. Consider the stage. Early in the audit, with little work done, the change is simpler. Late in the audit, with significant work done, the auditor needs to understand why it matters now.
3. Check for limitations. Has management refused anything, or has the audit found a matter the client wants to avoid?
4. Consider the users. Lender, regulator, or investor requirements for audited statements may not allow a change.
5. Evaluate the effect of work done. For a change to a review, can the audit work be used? Evidence from audit procedures can support a review, but the auditor must be sure the new engagement is performed to the standard that governs the new engagement.
6. Consult within the firm, especially if the request follows a finding. Involve the engagement partner and, where firm policy requires, a second partner or the quality management leader.
7. Decide and document.

If the change is justified

• Agree the new terms in writing, with a new or revised engagement letter, signed by management.
• Make sure the new engagement is performed under the right standard and reported accordingly. A change from an audit to a review is a different engagement, under AR-C 90, with a different report. Do not issue a review report as an audit report with a different title. A change to compilation follows AR-C 80.
• Tell those charged with governance. This is sound practice so that the people who oversee the financial reporting know the change and its reasons.
• Check independence for the new engagement, including any nonattest services.
• Document the work performed under the audit and how it was used.

If the change is not justified

The auditor continues the audit if management permits, applying the original terms. If management will not allow the audit to continue, withdraw where permitted. When withdrawing:

• Tell management in writing, with the reasons, and communicate the circumstances to those charged with governance.
• Determine whether there is a legal, contractual or other obligation to report to regulators, lenders or owners, and take legal advice.
• Consider the effect on the work already done, the fee, and what is delivered.
• Document the whole sequence.

Other changes in terms

• Scope additions. A client asks to add a supplementary schedule or a different framework. Amend the letter, and apply the relevant standard.
• Timing changes. A request to move the report date or the fieldwork schedule needs an amendment if it affects deliverables and fees.
• Fee changes. Document in writing and agree before the work. Fee disputes that might impair independence are addressed in the firm's policy.
• Management changes. New management should reaffirm responsibilities in the engagement letter.

Worked example

A client with a December year end signs an audit engagement for a bank covenant. In February, with 60 percent of fieldwork done, the CFO calls: the bank has agreed to accept a review for the current year because the company's debt ratios improved. Documentation: the bank's email and the amended credit agreement.

• The reason is a change in circumstances, not a scope problem, and no limitations or findings are outstanding.
• The partner approves the change.
• A new engagement letter for a review under AR-C 90 is signed, with revised fees and timing.
• The audit work already performed (confirmations, inventory observation) is evaluated for use in the review, and the team performs inquiry and analytical procedures to complete the review.
• The governance contact is told by letter.
• The final report is a review report under AR-C 90.

A contrasting example: in the same situation, the client's CFO asks for a review after the auditor reports a $400,000 unsupported adjustment and an unreconciled inventory difference. The reason relates to the findings, and the lender has not changed its requirement. The auditor declines, continues the audit and reports the findings to governance.

Documentation checklist

The request and date, the stated reason, the evidence for it, the assessment of justification, the partner's decision and consultation, the new terms, the communication with governance, the independence check, and the work done under the original engagement.

CORAA prepares ready-to-review audit files for US CPA firms; the firm keeps the client, the review and the signature. See /us.

Sources

• AICPA, AU-C Section 210, Terms of Engagement
• Sawyer Assurance, AU-C 210.14-.17 change in terms: sawyerassurance.blogspot.com
• Open Exam Prep, engagement acceptance and continuance: open-exam-prep.com
• AICPA, Statements on Standards for Accounting and Review Services, AR-C Sections 80 (Compilation Engagements) and 90 (Review of Financial Statements)
• U.S. Government Accountability Office, Financial Audit Manual, Volume 1 (GAO-26-108577), June 2026, section 215 (preliminary engagement activities, terms of engagement): gao.gov

AU-C references are to AICPA Professional Standards, paraphrased here; read the standard itself before relying on a requirement. This page is guidance, not professional advice. Report an error