Question

R David & Associates has agreed to take on a new audit client, Reaction Pty Ltd, a small garage door manufacturer that has never previously been audited. R David & Associates has issued an engagement letter prior to commencing work for the current year. While conducting the audit, the audit team is unable to gain sufficient appropriate audit evidence around accounts receivable due to a lack of documentation. You have informed client management that you need to issue a modified auditors report due to the scope limitation. In response, management has requested that the engagement become a review engagement with the associated lower level of assurance, as they are not required to have an audit. REQUIRED: Outline the appropriate response to this situation. Provide reasons to support your response