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CA Final · Advanced Auditing, Assurance and Professional Ethics · Sustainable Development Goals (SDG) & Environment, Social and Governance (ESG) Assurance

A CA, partner in Gupta & Associates, has been the statutory auditor of Ganga Agro Ltd. A client director requests the firm also to provide an ESG assurance report on the company's sustainability disclosures, and offers a fee contingent on the report showing the targets as met. What is the correct position under the Code of Ethics?

The CA should decline the contingent fee. Under the Code of Ethics, a fee dependent on the result of an assurance engagement creates a self-interest threat that no safeguard can reduce adequately. Disclosure to the audit committee or delaying payment does not remove the dependence on the outcome.

  1. AAccept, since ESG assurance is outside the Companies Act and ethics rules do not apply
  2. BAccept the contingent fee if disclosed to the audit committee
  3. CDecline the contingent fee arrangement, as fees dependent on the outcome of an assurance engagement create a self-interest threat that cannot be reduced to an acceptable levelCorrect
  4. DAccept but make the fee payable after the AGM

Explanation

Ethical requirements apply to all assurance engagements. A fee contingent on the outcome of an assurance engagement creates a self-interest threat so significant that no safeguard can reduce it, so it must not be accepted. Disclosure to the audit committee or deferring payment does not remove the contingency.

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