Skip to content

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

CA Arjun, auditor of Pearl Exports Ltd., receives a request from the incoming auditor, CA Divya, for information on the reasons for his replacement. CA Arjun believes that the management removed him after he questioned certain related party transactions. Under the Code of Ethics, what is the correct course for CA Arjun?

CA Arjun should seek the client's permission before disclosing anything. If the client gives permission, he should reply with the relevant facts. If it is refused, he must tell CA Divya that permission was denied, which she should treat as a warning sign when deciding whether to accept.

  1. ARefuse to respond, as the information is confidential in all circumstances
  2. BRespond only after obtaining the client's permission, and if permission is refused, tell CA Divya that permission was deniedCorrect
  3. CDisclose all the facts freely to CA Divya without obtaining any consent
  4. DDisclose only the amount of unpaid audit fees to CA Divya

Explanation

The Code of Ethics requires the existing auditor to respond to the proposed auditor's communication, but only with the client's permission because of confidentiality. If the client refuses permission, the existing auditor should state that fact to the proposed auditor, who should then consider whether to accept the engagement. Disclosing without consent breaches confidentiality, and silence fails the duty to reply.

Did you get it right without looking?

One question tells you little. A timed set on Ethics and Terms of Audit Engagements shows your real accuracy, how long you take and where you lose marks.

Practise Ethics and Terms of Audit EngagementsFree diagnostic mock

More Ethics and Terms of Audit Engagements questions