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CA Intermediate · Auditing and Ethics · Nature, Objective and Scope of Audit

Bharat Auto Components Ltd. has appointed CA Rohit as auditor. After the audit begins, the Managing Director asks CA Rohit to restrict the audit to verifying only the cash and bank balances because the firm wants a cheaper audit and promises to pay the full fee. Which response is correct for a statutory audit?

The auditor should decline. In a statutory audit, the scope and duties are fixed by the Companies Act, 2013, and management or the board cannot curtail them by agreement or fee arrangement. The auditor must report on the financial statements as a whole, so restriction to cash and bank balances is unacceptable.

  1. AAccept, because the auditor and the client can agree on the scope by contract
  2. BAccept, provided the audit report discloses the limited scope in the Emphasis of Matter paragraph
  3. CAccept if the board of directors passes a resolution authorising the restriction
  4. DDecline the restriction, because the scope of a statutory audit is set by the Companies Act and cannot be curtailed by management; the auditor must report on the financial statements as a wholeCorrect

Explanation

The statutory auditor's duties and scope are laid down by the Companies Act, 2013 and cannot be reduced by management or board arrangement. Disclosing in an Emphasis of Matter paragraph does not cure a scope the law does not permit to be restricted. A negotiated limit therefore cannot be accepted.

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