CA Final · Advanced Auditing, Assurance and Professional Ethics · Sustainable Development Goals (SDG) & Environment, Social and Governance (ESG) Assurance
CA Firm Sharma & Co. audits the financial statements of Ganga Power Ltd. The company has also asked the firm to provide assurance on its sustainability report. The firm's partner is a member of the company's ESG steering committee, which sets the sustainability targets disclosed in the report. What is the most appropriate conclusion under the Code of Ethics?
The partner's membership in the committee that sets the reported targets creates self-review and management participation threats to independence. Safeguards must eliminate or reduce them to an acceptable level, failing which the firm should decline the assurance engagement. Disclosure or fee reduction does not cure the threat.
- ANo issue, because ESG work is not covered by independence requirements
- BThe partner's membership creates a self-review and management-participation threat; unless it can be eliminated or reduced to an acceptable level, the firm should not accept the assurance engagementCorrect
- CThe threat is removed simply by disclosing the membership in the assurance report
- DThe firm may continue if the partner's fee is reduced
Explanation
Participating in a body that sets targets reported on is a management role, creating self-review and self-interest or management participation threats to independence. Disclosure or a fee cut does not remove the threat; only elimination or effective safeguards do, otherwise decline. Option A is wrong because independence applies to assurance engagements generally.
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