First View which should be explained and preferred.
SA 210 is applicable — see below content which says if management & tcwg are imposing limitation of scope prior to acceptance which will result in disclaimer then auditor should not accept assignment.
Alternative View
But here limitations are not directly imposed by management & tcwg it is because of circumstances so auditor may accept and then give disclaimer.
Limitation on Scope Prior to Audit Engagement Acceptance
If management or those charged with governance impose a limitation on the scope of the auditor‟s work in the terms of a proposed audit engagement such that the auditor believes the limitation will result in the auditor disclaiming an opinion on the financial statements, the auditor shall not accept such a limited engagement as an audit engagement, unless required by law or regulation to do so.
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