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CA Intermediate · Auditing and Ethics · Ethics and Terms of Audit Engagements

Before accepting the audit of Tulsi Retail Ltd., the incoming auditor CA Priya, who is replacing a retiring auditor, wishes to follow the Code of Ethics and the Chartered Accountants Act. Which step is correct?

CA Priya should communicate with the previous auditor in writing before accepting the appointment, asking whether there are professional reasons not to accept. Accepting without this communication amounts to professional misconduct under the Chartered Accountants Act, and relying on management or informing the previous auditor later is not adequate.

  1. AAccept the appointment directly, since communication with the previous auditor is optional
  2. BCommunicate with the previous auditor in writing to ask about any professional reasons why the appointment should not be acceptedCorrect
  3. CAsk the client's management to confirm that the previous auditor had no objection
  4. DAccept the audit and inform the previous auditor only after signing the audit report

Explanation

Under the Chartered Accountants Act, 1949 (First Schedule), a chartered accountant who accepts an audit in place of another without first communicating with the previous auditor in writing is guilty of professional misconduct. The communication must precede acceptance, not follow it or be left to management. Hence writing to the previous auditor before accepting is correct.

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